In 2021, risk has paid off in Fixed Income markets

Chart of the week

Last year, the various segments of the Fixed Income market performed in divergent manners in Europe, to the benefit of the most offensive instruments.

AT1 financial subordinated debt, issued by European banks with a lower level of seniority in the event of issuer default, recorded an average performance of +3.93% in 2021. Similarly, High Yield corporate debt, rated between BB+ and C, achieved an average performance of +3.50%.

Conversely, instruments considered the safest finished in negative territory. European sovereign bonds recorded a performance of -3.41%, on average. Investment Grade bonds, rated between AAA and BBB-, ended the year at -1.02%.


On the one hand, the safest securities remained subject to very low (or negative) yields linked to the ECB’s monetary policy. This was compounded by upward pressure on market interest rates, particularly from January to May and then from September to December, penalizing the value of these securities (when market interest rates go up, the value of securities goes down).

On the other hand, AT1 and High Yield securities have benefited from higher yields and less sensitivity to market interest rates.  This is likely to remain a major advantage for these assets in 2022 compared to sovereign debt and Investment Grade bonds, in an environment of higher inflation and less accommodative monetary policy. We therefore continue to favor investing in these market segments.

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The following opinion was written on January 06, 2022 and is susceptible of changing.

*Sources : Bloomberg, and calculation from Lazard Frères Gestion

As of : January 06, 2022

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