Now that the election is over, the big discussion in bond world is the hand-off from monetary to fiscal stimulus, said Quentin Fitzsimmons, fixed-income portfolio manager at T. Rowe Price (TROW) .
"Investors are questioning the balance between monetary and fiscal policy and how a greater reliance on the latter may impact fixed-income opportunities," said Fitzsimmons. "At the same time, the rebound in oil prices is causing subdued inflation rates to change and challenge fixed-income valuations."
Bond markets globally are likely to see upward pressure on yields over the long term, according to Fitzsimmons. He added that U.S. protectionism would be very disruptive to investment flows and planning.
"We are concerned about the risk to emerging markets and how they will behave, starting with Mexico," said Fitzsimmons. "When faced with volatility, central banks tend to kick the ball further into long grass - so they may deepen their easing cycles."
The interplay between slow but discernible policy tightening in the U.S. and a firm anchoring of Japanese and core European bond yields suggest significant opportunities to exploit the move in spreads between international markets, according to Fitzsimmons.
He added that global fixed-income investors will continue to be rewarded for blending different country economic cycles together, especially in certain sovereign bond opportunities that are not traditionally part of global fixed-income sovereign benchmarks.
"Credit markets remain supported by central bank balance sheet expansion and purchase programs as well as the abeyance of the energy- market scare," said Fitzsimmons. "If volatility also remains suppressed in this environment, security selection can be fruitful."