Bond markets remain volatile but opportunities for stockpickers

Volatility in global bond markets may soon start to represent a buying opportunity for portfolio managers who are able to select high quality opportunities, says Fidelity International.

Bond markets have shown significant volatility in recent weeks as the rise in defaults in US sub-prime mortgages has affected some debt products and markets more generally.

However, strong economic data indicate that the issue remains isolated and that, after several years of remarkably low volatility and narrowing credit spreads, the market movement is starting to provide investment opportunities for portfolio managers.

Ian Spreadbury, Portfolio Manager of Fidelity Investment Funds MoneyBuilder Income Fund, says, “Fidelity’s MoneyBuilder Income Fund does not hold US sub-prime mortgages. It also does not hold any Collateralised Debt Obligations or any other structured products that may contain exposure to sub-prime mortgages.

“The recent market volatility has brought spreads more in line with fair value and I have taken this opportunity to increase exposure on a selective basis, particularly to utilities and telecom sectors. I have also retained my small overweight exposure to high-yield and emerging Europe in issues where I have a high level of conviction.

“I have moved the portfolio from an underweight duration position to a modest overweight duration position as I believe the future path for short term interest rates is now more balanced after this significant credit spread widening.”