Taxable Fixed Income
At a Glance
Oppenheimer trades a full suite of Fixed Income securities on a global basis. Through our institutional sales and trading presence in Europe, UK, Asia, and the U.S., we effectively provide twenty-four hour coverage in U.S. Treasuries, Investment Grade, High Yield, Emerging Markets, Mortgage-backed Securities, Structured Notes, CDs, and Commercial Paper.
Year in Review
The Fixed Income markets delivered positive results across all sectors in 2019. In contrast to the prior-year volatility related to global political and economic policy conflicts, we experienced an interest rate environment which held a consensus fear of global economic slowdown. This fear is seen in the decline in yield on the 10-year treasury from 2.69 percent to 1.92 percent, but better told by the change in the steepness of the curve between 2-year and 10-year U.S. treasuries. This normalizing of the curve was accompanied by three cuts by the Federal Reserve, for a total of 75 basis points, as an accommodation to concerns about global economic growth.
The strong performance of the bond markets resulted in a steady inflow of investment across all sectors. Municipal bond funds enjoyed 52 straight weeks of inflows, and the year produced solid total returns for investment grade corporate bonds, treasuries, high-yield bonds, emerging markets, and mortgage-backed securities. Fueled by a dovish Federal Reserve and a “wall of money,” we saw a robust new issue calendar across all sectors not seen in several years, resulting in a supply of bonds that was readily absorbed by the market.
Our Fixed Income results reflect successful efforts in capturing client transactional flow as well as mindshare across all of our desks on a global scale. We benefitted through successful placement of strategic emerging markets and municipal new issues, and were able to trade nimbly in the secondary markets. The success we achieved in 2019 is derived from the careful execution of our plans laid out in the prior year, benefitting as the markets became more competitive.
Our Fixed Income results reflect successful efforts in capturing client transactional flow as well as mindshare across all of our desks on a global scale.
Areas of Focus
As the institutional fixed income business continues to evolve at a rapid pace and comes to more closely resemble the equities side of the house in terms of efficiency and transparency, our challenge is to advance alternative sources of revenue, while keeping costs contained and sticking to proven expertise. Key for us will be further expanding our footprint and simultaneously adding depth of products to each of our desks. One area where we have had particular success is in more targeted utilization of research, where bespoke, relative value opportunities are identified and communicated to our clients. This is a stark contrast to the traditional publication of research, and results in both idea generation and profitable trades, which we share with our institutional clients. Another strategy is to leverage embedded expertise and capacity in different ways. An example of this will be our focus in 2020 on enhancing the custody and clearing capabilities for institutions, targeting an underserved segment of clients who will benefit from high touch, personalized service.
With U.S. treasury bonds yielding historic low interest rates at the time of this writing, all indications are that investors are likely to continue putting money into the bond market in 2020, which should fuel continued market gains. This will be especially relevant, even as easing from central banks and expected economic growth slowdown are priced into the market. The general consensus is that the Federal Reserve is on hold for the year ahead of the 2020 U.S. presidential election has been dramatically shifted due to ongoing concerns related to COVID-19 and the prospects for significant global economic growth.
Bond refinancings at these near-historic low interest rates will likely result in continued record issuance in all sectors. The key question for 2020 is whether demand will keep pace with the supply. We will surely test our global institutional distribution channels with primary offerings, keeping us closely engaged with our clients.
Should the market begin to price in an uptick in global economic activity, it is clear that there is much room for rates to rise, which is where the risk will be in 2020. The herd mentality that caused a rush into the fixed income markets could conceivably go on a “buyers strike” if rates begin to rise precipitously, putting the brakes to primary and secondary activity.
With global trade tensions seeming to ease and uncertainty over Brexit clearly reduced, policymakers will remain focused on the incoming economic data, with close attention paid to growth and inflation metrics, while recognizing uneven economic performance throughout all regions and sectors. Between the elections later in 2020 and the already priced to perfection fixed income asset class, it is almost certain that 2020 will be dramatically different.
Given our high turnover of inventory and conservative risk management profile, we are well-positioned to navigate these markets and continue to provide efficient execution and profitable ideas to our institutional client base.
Bonds Traded Globally
Bonds Traded Globally