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CONTRIBUTORS

John Beck

Director of Global Fixed Income,
Portfolio Manager
United Kingdom

Stuart Lingard

Senior Client Portfolio Manager
Franklin Templeton Fixed Income

Alex Lee

Head of Canada ETF Product Strategy
Franklin Templeton Investments

Juan Gerardo Cruz

Client Portfolio Analyst
Franklin Templeton Fixed Income

Key takeaways

  • The aggressive monetary policy tightening of 2022 and 2023 helped create an attractive entry point for fixed income investors in 2024.
  • Yields remain elevated versus historical levels, while global central banks embarking on monetary policy easing should provide a tailwind for bond portfolios going forward.
  • We believe that now is the time to benefit from these compelling yields, ahead of potential declines.
  • At the same time, opening up portfolios to include global investment opportunities can help to achieve higher potential risk-adjusted returns.

Introduction

Geopolitical turmoil, surging inflation and monetary policy tightening provided a challenging backdrop for bond investors in 2022 and 2023. However, we believe that the rest of 2024 offers a much more constructive environment for fixed income investing, with a multitude of potential opportunities not only across North America but also Europe and many emerging markets (EMs).

In this publication, we would like to explain why, in our view, now is an opportune time to invest in global bonds, which can provide additional return potential versus a domestic bond portfolio. In the following, we aim to demonstrate that there are benefits to diversifying a portfolio utilizing different sovereign issuers and currencies.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Equity securities are subject to price fluctuation and possible loss of principal.

Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.

International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically.

Currency management strategies could result in losses to a portfolio if currencies do not perform as expected.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. All investments involve risks, including possible loss of principal. There is no guarantee that a strategy will meet its objective. Performance may also be affected by currency fluctuations. Reduced liquidity may have a negative impact on the price of the assets. Currency fluctuations may affect the value of overseas investments. Where a strategy invests in emerging markets, the risks can be greater than in developed markets. Where a strategy invests in derivative instruments, this entails specific risks that may increase the risk profile of the strategy. Where a strategy invests in a specific sector or geographical area, the returns may be more volatile than a more diversified strategy.

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