Our Fixed Income Top Picks
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Cybersecurity is essential in the age of AI
Anthropic’s Mythos model marked a turning point for the cybersecurity sector after companies realized they were ill-prepared, from a cybersecurity perspective, to face the new challenges posed by AI. The AI security concerns that have surfaced in recent months may further reinforce this trend, as the precautions needed to monitor and control these models could also contribute to an increase in security spending. These positive developments are reflected not only in improved investor sentiment but also in rising revenue and profit expectations, which attracted significant capital inflows into the sector in the third quarter. These trends are likely to persist in the coming quarters.
German Healthcare Giant Shows Signs of a Comeback.
European markets seemed to be struggling in recent weeks, but following the declines, patterns suggesting a correction have emerged on the indices, with an increasing number of stocks signaling a possible turnaround. However, the technical charts of the companies on the list still do not reflect clear trading opportunities. For this reason, this week we are analyzing one stock from the momentum list: Siemens Healthineers. The company is part of the Siemens Group and is one of the world’s leading manufacturers of medical devices.
The rise in yields seen over recent months has created a new environment across global fixed-income markets. With U.S. 10-year Treasury yields above 5%, increasing fiscal concerns in France, and corporate credit spreads remaining historically tight, the importance of selection has increased. In our latest top pick list, we highlight bonds that may offer attractive risk-adjusted return potential as part of a suitably diversified portfolio.
Over the past few months, the bond market landscape has changed materially. Long-term yields across developed markets have climbed to new local highs. Current yield levels of above 5% on U.S. 10-year Treasuries and around 3.5% on German Bunds appear fundamentally justified. However, given elevated sovereign debt burdens and the resulting increase in interest servicing costs, significantly higher yield levels would be undesirable from both an economic and political perspective.
The corporate bond market has remained surprisingly resilient so far, although increasingly tight credit spreads are offering progressively less compensation to investors for the risks undertaken. At the same time, healthy corporate balance sheets and continued earnings strength suggest that there are currently no clear signs of systemic stress in credit markets.
Euro-Denominated Corporate Bonds
Yields on euro-denominated corporate bonds moved higher during the past quarter, driven primarily by the increase in risk-free rates rather than any deterioration in corporate fundamentals. Rising energy prices and renewed inflation concerns weighed on bond prices, while credit spreads remained relatively stable thanks to solid corporate fundamentals and sustained investor demand.
Dollar-Denominated Corporate Bonds
Dollar-denominated corporate bonds also experienced a meaningful increase in yields during the third quarter. The majority of the USD bonds included in our selection continue to be issued by Central and Eastern European issuers. The two OTP Bank bonds featured on the list are subordinated instruments and have been included in our top pick list for some time. In both cases, the issuer retains the option of early redemption (callability), which may significantly limit the yield ultimately realized by investors if the bonds are called before maturity.
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