In the tumultuous landscape of financial markets, investors are grappling with uncertainties arising from contradictory data, Federal Reserve policies, and fluctuating risk sentiments. In light of this, Franklin Templeton proposes that US bonds have become a notable source of opportunity.  

The asset manager points out that despite slower economic growth, US Treasury (UST) yields at multi-decade highs have revitalised income opportunities in the US bonds. “…rising intermediate UST yields combined with corporate bond spreads are now attractive on both yield and income bases,” writes Katie Klingensmith, Senior Vice President and Investment Specialist at Brandywine Global, a Franklin Templeton company. 

“Higher yields also provide a buffer to total returns in a scenario of continued rising UST yields or if credit spreads were to widen,” she adds. 

Additionally, Bill Zox, Portfolio Manager at Brandywine Global, informs that corporate fundamentals across the rating spectrum signal tighter credit spreads and more resilient returns from US bonds. He says that companies, capitalising on lower yields in recent years, have extended debt maturities, delaying the impact of rising rates.

Subsequently, Josh Lohmeier, Portfolio Manager, Investment Grade at Franklin Templeton, opines that the outlook for specific sectors includes favouring higher credit quality in investment-grade corporates, particularly utilities, and pharmaceuticals. In the high-yield segment, non-bank financials stand out, benefiting from a focus on liquidity and capital, suggests Zox.

Franklin Templeton also discusses investment opportunities in private credit and commercial real estate. ‘Private credit has seen tremendous growth over the last 15 years…an uptick in financing for growth companies that pledge their intellectual property as collateral has added to the opportunity in the sectors,” asserts Michael Buchanan, Co-Chief Investment Officer at Franklin Templeton. 

“Value has also begun to rear its head in the commercial real estate market, where negative headlines and strong risk-off sentiment have beaten down pricing to a point that merits a second look,” he adds. 

Read the full insight here.