According to the results of a recent survey, fixed-income investors want more ESG data than what is currently available. A survey of 111 senior buy-side fixed-income investors, which was conducted by analytics firm Coalition Greenwich, found that 90% believe ESG is important to decision-making, but only a third have fully integrated ESG into their risk analysis. The reason for the large difference is a lack of ESG data. Coalition Greenwich’s senior analyst Stephen Bruel stated “It boils down to risk management. If you don’t have reliable ESG data about an issuer or issuance, then it’s harder to calculate what the negative consequences might be.” More than half of the respondents said it was “important to incorporate ESG in fixed-income portfolios to perpetuate corporate values,” but there’s a “gap between where the survey participants want the industry to be and where it actually is.” Data was listed as the largest obstacle to achieving these ESG goals. The concerns about ESG data quality included greenwashing and inconsistent ratings. Essentially, if the data isn’t reliable, then quantifying risk becomes harder, which could open up investors to sizeable losses. This is especially true with the calculation of climate risk, which would certainly benefit from more data.

Finsum: Based on the results of a recent survey, fixed-income professionals believe ESG is important, but a lack of data is preventing more of them from implementing an ESG strategy.

The $4 trillion municipal debt market is expected to have a “bounce back year” in 2023, according to Charles Schwab’s Cooper Howard. The director and fixed-income strategist for the Schwab Center for Financial Research said in a recent Bloomberg TV interview that “A slower pace of interest-rate hikes, attractive yields, and relatively healthy state and local government finances should lure investors back after demand plunged this year.” He also stated “Credit quality is very high in the municipal bond market. State and local revenues have surged to record-level highs driven by the economic recovery. Given the rise in yields, it is more attractive for retail investors, so there will be more demand coming into the market.” Munis had fallen out of favor due to a combination of inflation and recessionary concerns. According to data compiled by Bloomberg, muni sales are down nearly 19% this year at about $351 billion. However, 10-year municipal yields have more than doubled since the start of the year. While recessionary fears may continue, the municipal market won’t be as affected due to healthy credit ratings. Howard expects municipal debt tied to public transportation to lead the rebound as the airline industry is bouncing back.

Finsum:Schwab strategist Cooper Howard predicts a bounce-back year for munis due to slow rate hikes, attractive yields, and healthy credit in state and local governments.

Even though inflation continues to force the Fed’s hand on tightening, money managers are starting to rebuild their exposures toward Treasuries, with the hope that the highest payouts in years will help cushion portfolios from the damage inflicted by additional rate hikes. For instance, Morgan Stanley believes that a multi-asset income fund can find some of the best opportunities in decades in dollar-denominated securities such as inflation-linked debt and high-grade corporate obligations. That’s because interest payments on 10-year Treasuries have hit 4.125%, the highest since the financial crisis. In addition, PIMCO estimates that long-dated securities, which have been hit hard due to the Fed’s hawkishness, will bounce back if a recession should occur. They believe that a recession would ignite the bond-safety trade, where government debt would act as a hedge in the much-maligned 60/40 portfolio. Essentially, higher income and lower duration are helping to make the case that bonds will have a much better 2022. While inflation and liquidity concerns remain, the median in a recent Bloomberg survey shows “dealers, strategists and economists project bond prices will rise modestly in tandem with cooling inflation, with the 10-year US note trading at 3.5% by end of next year.”

Finsum:A combination of higher income payments and lower duration has money managers becoming more bullish on treasuries.