Focus on resilience
Focus on resilience
Within fixed income, the focus remains on resilience as we expect elevated market volatility and downside risks, especially if inflationary risks persist and monetary easing is delayed.
Eli Lee
Managing Director,
Chief Investment Strategist,
Bank of Singapore
Heading into May, increased US Investment Grade (IG) bond issuance following earnings may widen spreads, while higher oil prices and a more hawkish Federal Reserve add uncertainty and keep stagflation concerns elevated.
We maintain a modest underweight stance on fixed income, focusing on resilience amid expected volatility and downside risks, particularly if inflation persists and policy easing is delayed. High-quality credits remain preferred, with a neutral view on overall portfolio duration.
A weighted average duration of three to seven years provides flexibility across changing conditions. Duration can be extended during macro downturns but should be shortened if inflation pressures remain elevated, unless yield curve steepness offers sufficient compensation.
In Developed Markets (DM), we favour IG over High Yield (HY) given late-cycle dynamics and less attractive valuations. In Emerging Markets (EM), we remain neutral on Asia, supported by stable fundamentals and strong technical factors.
Developed Markets
Heavy bond supply for AI CAPEX and M&A, along with rate volatility, may increase performance dispersion and negatively impact US IG. In a prolonged energy disruption, European spreads are likely to underperform US due to Europe’s reliance on energy imports from the Middle East.
Emerging Market Corporates
EM corporates have outperformed DM peers YTD. Selective exposure to quality EM bonds provides global investors diversification benefits amid long-term US Dollar weakness and worsening fiscal conditions in major developed economies. We will continue monitoring the effects of the Middle East conflict on growth and inflation in the broader EM space, as well as fund flow shifts driven by changes in risk sentiment.
Asia
Asia underperformed other EM regions in April amid a risk-on environment. We maintain a Neutral stance, supported by stable fundamentals and favourable technicals, although exposure to prolonged oil disruption risks varies across countries.
China’s April Politburo meeting was largely uneventful, with a focus on energy security, technological self-reliance, and supply chain resilience. Stronger-than-expected growth and ample liquidity reduced the urgency for monetary easing, with no signals of rate or RRR cuts.
However, policymakers reiterated support for a proactive fiscal stance and moderately loose monetary policy. Priorities also include stabilising the property market, managing local government debt risks, and ensuring smooth functioning of local governments.
Emerging Market Sovereigns
Hard currency EM sovereign bonds rebounded strongly in April as geopolitical risk premia eased, allowing fundamentals to reassert.
We remain constructive on EM sovereign debt, favouring carry-rich credits that compensate for residual volatility. Improved conditions – following the US-Iran ceasefire and stabilising US rates – provide a supportive backdrop, though selectivity is key.
We prefer issuers with credible fiscal consolidation and strong multilateral support, while remaining cautious on lower-rated sovereigns facing significant refinancing pressures from late 2026.
Important information
The information provided herein is intended for general circulation and/or discussion purposes only. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The information in this document is not intended to constitute research analysis or recommendation and should not be treated as such.
Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.
The information provided herein may contain projections or other forward looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same. Investments are subject to investment risks, including the possible loss of the principal amount invested.
The Bank, its related companies, their respective directors and/or employees (collectively “Related Persons”) may or might have in the future interests in the investment products or the issuers mentioned herein. Such interests include effecting transactions in such investment products, and providing broking, investment banking and other financial services to such issuers. The Bank and its Related Persons may also be related to, and receive fees from, providers of such investment products.
No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.
The contents hereof may not be reproduced or disseminated in whole or in part without OCBC Bank's written consent. The contents are a summary of the investment ideas and recommendations set out in Bank of Singapore and OCBC Bank reports. Please refer to the respective research report for the interest that the entity might have in the investment products and/or issuers of the securities.
Investments are subject to investment risks, including the possible loss of the principal amount invested. The information provided herein may contain projections or other forward-looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures, predictions or projections are not necessarily indicative of future or likely performance.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
This document may be translated into the Chinese language. If there is any difference between the English and Chinese versions, the English version will apply.
Cross-Border Marketing Disclaimers
OCBC Bank's cross border marketing disclaimers relevant for your country of residence.
Any opinions or views of third parties expressed in this document are those of the third parties identified, and do not represent views of Oversea-Chinese Banking Corporation Limited (“OCBC Bank”, “us”, “we” or “our”).