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Investment-grade debt will offer the best risk-adjusted returns over the next year, according to a survey of fixed income managers.

According to Russell Investments’ latest quarterly survey, almost 60% of bond and currency managers expect the spreads of investment-grade credit to remain within 10 basis points (above or below) over the next 12 months, while 38% expect a moderate tightening of spreads.

Most managers said they expect their use of investment-grade corporates to decline or remain stable in the short to midterm. Thirty-five per cent said “caution is warranted” when considering whether current spreads compensate for the risks, up from 14% the previous quarter.

Eighty-nine per cent of managers said they expect emerging market currencies to provide positive returns over the next 12 months, with the Brazilian real seen as the most attractive currency.

Almost three-quarters (74%) of respondents said they expect spreads in hard-currency emerging market debt to tighten in the coming year, with Mexico, Ukraine and Brazil offering the highest return potential.

More than two-thirds (36%) of managers said they had more than 15% exposure to emerging market hard-currency corporates.

Managers were feeling good about a global economic recovery: 57% said they expected the economy to bounce back to pre-pandemic levels in 2022, with 42% predicting the rebound would come in the first half of the year.