Expect interest rates to stay lower for longer because odds are the world’s economies are not going to improve much anytime soon, said Andres Sanchez Balcazar, portfolio manager for the recently launched Ivy Targeted Return Bond Fund. “Developed markets are addicted to low rates and even in case of a Fed hike rates are likely to remain at historical lows even as they go up compared to earlier cycles,” said Balcazar. “We are not hanging hopes on economies getting better.” Balcazar said Europe’s economy will most assuredly continue to crawl along because its banking union is not working out well and episodes like Brexit keep popping up “The Euro crisis is ongoing and it’s hard to believe that this is going to end up well,” said Balcazar. Meanwhile, over in Japan, Balcazar calls ‘Abenomics’ the “most experimental” economic process in the world right now. In Balcazar’s view, the Bank of Japan is trying to control the shape of the yield curve and its efforts to get out of deflation hasn’t shown signs of success yet. “They are engaging in more financial repression as the Bank of Japan nationalizes the banking sector,” said Balcazar. Over in China Balcazar said investors need to get used to slower growth rates from the once overheated emerging market. In his view, the country is shifting to domestic demand and commodity exporters will be impacted negatively. “China’s slower growth rate will have a ripple effect -especially to emerging markets exporters – and investors need to accept it,” said Balcazar. Taking these four themes into account, Balcazar said he is going long duration industrial credits in the U.S. and emerging market debt in U.S. dollars. “Emerging market countries are in poor growth cycles now and that means better opportunities in dollar denominated bonds in the current environment,” said Balcazar.
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