After US President Donald Trump imposed sweeping tariffs on imports to the US, causing extreme market volatility, Bill Zox, portfolio manager of Brandywine Global, a subsidiary of California-based investment manager Franklin Templeton, and Mark Munro at investment house Aberdeen, discuss investment opportunities in fixed income.

Bill Zox, portfolio manager of Brandywine Global, believes that the extreme market dislocations in recent weeks call for risk mitigation.In this respect, he highlighted opportunities within US high yield corporate bonds.

“US high yield offers a compelling alternative to equities. High yield performs better than equities in times of recession and the US is at high risk of a recession,” Zox told this news service in a recent interview.  

In significant stock market declines, high yield draws down less than stocks and recovers faster. After giving up the post-election gains in late March, stocks have been in freefall since the Trump administration’s extreme tariff policy. “While high yield bonds also have been under pressure, they have held up much better than stocks on a total return basis,” Zox continued.

From the peak of the Russell 2000 Index on 25 November 2024 through to 8 April 2025, the High Yield Index has been down -2 per cent while the Russell 2000 is down -27.9 per cent on a total return basis. From the peak of the S&P 500 Index on 19 February 2025, high yield has declined -3.3 per cent versus a -18.9 per cent drawdown for the S&P 500.

Mark Munro at Aberdeen also commented on the shift from equities into bonds within managed funds since the start of 2024 – a trend which has persisted so far in 2025.

Munro anticipates that capital will shift from money market funds into bonds as central banks cut rates, particularly short-dated corporate bonds. “The shift could continue for some time, given the deteriorating economic outlook due to trade tariffs and geopolitical events. Current investor sentiment is fragile, and bonds could offer a relatively safe haven, particularly if the slowdown extends into recession,” Munro said. “However, if economic conditions improve and stock market volatility decreases, we might see a resurgence in equity investments.”

Whether investors choose government bonds or corporate bonds would depend on their individual risk appetite. Compared with a government bond, corporate bonds offer a higher total yield, due to the extra credit spread to compensate for the additional risk of lending to a company rather than a government. Credit spreads rise and fall to reflect economic conditions and the idiosyncratic characteristics of the issuing company. Munro believes that focusing on strong fundamental company research, tailored to the economic environment, can provide good opportunities within corporate bonds, adding value for clients.

“In the event of  the Trump administrative policy causing global output to fall sharply, central banks are likely to cut interest rates in response,” Munro continued. The European Central Bank (ECB) is quite advanced down the line towards a neutral rate, whereas the US Federal Reserve has much further to go. “These additional Fed cuts could well mean US Treasuries outperform German Bunds. The broader theme of deglobalisation, should result in higher levels of inflation. This makes inflation-linked bonds particularly attractive in developed markets, as the pricing of inflation has significant scope to increase from here, whilst the real yield on offer is historically attractive,” Munro said.

US corporate credit has underperformed since the start of the year and now looks relatively attractive. Munro favours less volatile short-dated credit and short-dated financials, especially whilst the financial services sector is not exposed to tariffs. He prefers defensive sectors such as utilities, real estate and healthcare and also favours companies that generate resilient cashflows. Munro is less inclined to hold cyclical and tariff-exposed sectors at this stage, such as industrials and autos.