Consider secondary currencies when looking for yield, says Patrick Bradley, a product specialist with the global fixed-income team at Brandywine Global Investment Management in Philadelphia. He’s also a manager of the Renaissance Optimal Income Portfolio.
“Mexican bonds were brutally punished in May, as was Mexico’s currency. But in June we saw Mexican bonds and the peso rally. We’ve seen our Chilean peso exposure rally. Accounts where we have exposure to the Hungarian forint have rallied as well.”
May was horrific for many investors. With Euro countries teetering, investors sold iffy securities en masse. “If you had anything that smacked of risk, you were punished,” says Bradley.
“In June, we saw investors were more willing to dip a toe back into the marketplace and take on a little bit of risk.”
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To that end, investors are reevaluating the European situation.
“The crises in the Euro countries continue, but investors appear to be thinking the Euro countries will get a little closer to resolution. Greece will not exit the Euro[zone] this year, and perhaps not even next year,” says Bradley. “The coalition government that was formed in Greece will be able to affect spending restraint as well as policies that will foster economic growth going forward.”
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And the June bounce-back is proof.
“Investors did return to the market,” says Bradley, “whether it was stocks in the U.S. or global bonds in places like Mexico and Hungary, as we saw those currencies rally as well.”
Bradley doesn’t foresee a double dip in the U.S. economy, but says the global economy will achieve modest growth. “We need to separate certain geographies. We believe the Euro countries are in a recession and they will be for the next three-to-six months. But policies will change over time. The ECB will become more aggressive.”