A perplexing situation is the sanguine state of volatility despite a torrent of risks and negative headlines such as deep stress in the banking system due to an inverted yield curve, rising recession risk, inflation, a hawkish Fed, geopolitical concerns, and a looming debt ceiling deadline. 

In Barron’s, Lauren Foster covered some recent comments from Vanguard on the debt ceiling and its impact on volatility. According to the asset manager, more volatility is likely but there’s little to worry about in terms of a default on the debt as it believes an agreement will be reached. However, it sees volatility rising into the deadline.

It also believes that the deadline could be shifted later or that a temporary agreement could be reached. Even if a technical default happens, it’s unlikely that the US would not meet its obligations but it could affect the timing of a payment. But, the asset manager doesn’t think that investors should worry about this scenario. Instead, they should focus on good risk management practices and sticking to their long-term investment plan. 

Finsum: Volatility has remained subdued despite the market facing considerable risks. Vanguard shares its perspective on the matter and how a debt ceiling breach would play out.

2023 has been quite different compared to 2022 especially from a financial markets perspective. Due to raging inflation and a hawkish Fed, 2022 saw weakness in both stocks and bonds. In contrast, both asset classes have delivered positive returns in 2023 YTD despite significant and continued headwinds.

This is particularly the case for active fixed income. In an article for the Financial Times, Madison Darbyshire and Harriet Agnew highlight how large asset managers have been increasing allocations to the category as they look to lock in higher rates with the Fed in the final innings of its rate hikes. Analysts are noting demand from institutional and retail investors, across the active fixed income spectrum. 

In 2022, $332 billion moved out of the category, but 2023 has already seen inflows of $100 billion in the first third of the year. This trend is expected to only strengthen with active fixed income ETFs expected to continue taking a larger share of the fixed income and ETF universes. According to State Street CEO Yie-Hsin Hung, "It feels like the beginning stages of what happened in equities.”

Finsum: After a poor 2022, inflows into active fixed income are sharply higher as they look to lock in higher rates given the end of the Fed’s tightening and increasing odds of a recession.

When opportunity knocks, what do you do?

Pretend you’re not home?

Well, in this case, volatility like never before seen in the bond market’s a prime chance generated for selective fixed income sectors, according to pgim.com.

Greg Peters, a managing director and co-chief investment officer of PGIM Fixed Income thinks the time’s idyllic for active fixed income managers.

Investing, well, yeah, so it’s rumored, is a difficult road to negotiate as it is. But introduce volatility into the mix and, right again: whoa.

The uncertainty of current economic conditions has landed fixed income assets smack dab on center stage, according to thestar.com.

Typically, fixed income assets, of course, don’t come with as much volatility and, consequently, compared to equities, the degree of risk’s dialed down.

With the possibility of handsome yields and capital gains in the eye of southbound economic conditions, Principal Asset Management Berhad believes that high-quality fixed income presents attractive opportunities for investors.

When it comes to equity investments, incorporating fixed income investments into their portfolios puts investors in a position to balance out the risk.

Rules. Rules. Okay, right; not on your top 10 list. Understood. But since the, well, ETF rule, hit the scene in 2019, ETFs have, as they say, come a long way, according to etfdb.com.

In fact, those that have proved their mettle are paying dividends by being particularly attractive to investors. Okay, but how do they pull that off? The three year milestone’s one way. During that period, a strategy to put together assets, establish a track record and strut their worth can blossom. Investors – with fixed income engaging a return – could mull the addition of a core fixed income ETF on the verge of hitting its own three year mark.

This year, escalating inflation and interest rates – not to mention the burgeoning risk of a recession – have done a number on the way in which exchange traded funds are performing, according to the globeandmail.com.

“We’re likely going to see a dichotomy of looking for safety while seeking income,” says Danielle LeClair, director of manager research at Morningstar Canada in Toronto.

According to an article by Katherine Greifeld and Emily Graffeo, Blackrock is launching its own ETF for income investors. This marks new fixed income CIO Rick Reider’s first ETF launch. 

The actively managed BlackRock Flexible Income ETF will invest in more higher-yielding parts of the fixed income spectrum like high-yield bonds, emerging market debt, and securitized assets. It will have an annual expense ratio of 50 basis points and will be managed by Rieder, Jacob Caplan, and Samir Lakhani. 

Fixed income ETFs are experiencing rapid growth in terms of inflows and new issues due to high rates and an uncertain economic outlook. Many analysts anticipate ETF flows to become a dominant factor within the fixed income market like ETFs have for equities. Within the category, Blackrock is the leader with $600 billion in assets out of a total of $1.4 trillion in fixed income ETFs. 

According to Blackrock, these ETFs are serving investors while also leading to more liquidity in fixed income markets. BINC carries an annual expense ratio of 50 basis points and is actively managed by a team including Rieder, Jacob Caplain and Samir Lakhani.

FinSum: Blackrock is the leading issuer and manager of fixed income ETFs. Recently, it launched the Blackrock Flexible Income ETF which invests in higher-yielding debt.