The biggest shock to the global fixed-income markets in 2023 was the U.S. recession that wasn’t, according to the asset classes’ top research providers.
“Global fixed-income markets were dominated by the U.S. growth and monetary cycles this past year,” said Hussein Malik, co-head of global research at J.P. Morgan Chase. The market’s consensus view was that the U.S. economy would fall into a recession by the end of 2023, only to be surprised by its growth in the face of the Fed's cumulative tightening of more than 500 basis points.
That made for an “unprecedented” year for the fixed-income markets and investors, according to Michael Maras, head of global fixed income, currencies and commodities research and head of EMEA research at BofA Securities. “While the markets were poised for a U.S. growth slowdown that never came, growth proved so resilient that hopes for aggressive Fed cuts had to be abandoned driving us to new yield highs,” he said.
“Hence it was the first year in the history of the United States where Treasuries produced the second consecutive annual loss,” Maras added. Additionally, the majority of the consensus fixed-income and equity macro trades — such as long rates, short USD, short equities, short U.K., and long China — did not work.
Against this uncertain backdrop, navigating across these markets was much trickier for analysts and their buy-side clients. “2023 felt like ‘four seasons in one day’ as we traded every cyclical U.S. scenario across fixed-income markets, including goldilocks, soft landing, and recession,” said Marko Kolanovic, chief global markets strategist and co-head of global research at J.P. Morgan.
This forced fixed-income analysts to be both “nimble and humble” while adjusting views and trade recommendations to help clients negotiate the rollercoaster markets, Kolanovic added. Throw in the impact of the regional bank crisis that unfolded in March and that claimed three small-to-mid-sized banks and “connecting the dots across the U.S. fixed-income markets was even more important than ever,” he said.
The bond and credit specialists who weighed in on Institutional Investor’s fifth annual ranking of global fixed-income providers agreed, and they have once again recognized J.P. Morgan as the No. 1 firm. The bank extends its reign for a fourth year in a row.
More than 6,700 respondents, representing about 1,700 asset managers, voted on the top fixed-income research providers for developed and emerging markets across North America, Latin America, Asia-Pacific, Europe, and Emerging EMEA.
Further down the leaders’ table there was little change among the cadre of firms ranked in 2022. BofA Securities repeated its second place in the leaders’ table (with 104 published positions to J.P. Morgan’s 112). Barclays once again took third, while Morgan Stanley and Citi once again placed fourth and fifth, respectively.
Due to the challenging macro environment, demand for research content and services continued, according to Maras. BofA Securities reported that client requests for one-on-one meetings and video conferences were up more than 28 percent year-to-date, while bespoke requests are up over 100 percent. “Investors are looking for out-of-consensus calls backed by strong analysis and more relative value trade ideas,” he added.
Additionally, Maras said it was noteworthy that in 2023 there was strong demand for macro educational material among younger portfolio managers and analysts who were encountering a high inflation and rapidly rising interest rate environment for the first time in their careers.
“It's really a market where it's been hard to predict where the other shoe would drop,” confirmed Brad Rogoff, global head of fixed income, currencies, and commodities research at Barclays. “If you didn't have broad strength, you were going to struggle.”
This meant being able to pivot when unexpected events like the regional banking crisis occurred. “You kind of need to understand the plumbing of the system when something like that happens and it's a competitive advantage.”
Rogoff reported that Barclays has spent the last few years investing in its data science team, but not in isolation. “It’s not just a team of data scientists that do research on their own,” he said. “We like to think about how our analysts can come to them with ideas and problems that lead to better and innovative research.”
More than one provider emphasized the importance of a fixed-income analyst’s ability to collaborate across asset classes in this environment. “We have a culture of closely collaborating across asset classes with our economists, and we're able to bring these teams together quickly to tackle issues, even if they weren't on our radar,” said Mike Zezas, global head of fixed-income research at Morgan Stanley, adding that the firm operates with a leaner team than some of its competitors.
“One of the ways we try to leverage that team is by being able to collaborate more, react faster, and not be locked into our publication or marketing strategy,” he concluded. “The ability to change direction quickly is a hallmark of Morgan Stanley research in the fixed-income space.”
