Dieudonné Djimi, Global Interest Rates & Currency Portfolio Manager at Ostrum Asset Management, discusses Outlook for sovereign bond markets in 2024 . As mentioned in Ostrum 2024 global outlooks, the fixed income market will have to deal with an unprecedented rise in net bond issuance, as the central banks aim to ease their rates. This situation should lead towards a record year for sovereign issuance. In this environment, how can we ensure that market makers are able to fulfil their role as principal liquidity providers to the bond markets? How can trading protocols and enhanced connectivity create new sources of liquidity? What is the role of transparency in underpinning market resilience? How do conditions in the repo and derivatives markets impact underlying bond markets?

At a time when the issue of preserving forests to combat global warming is central to the COP28 debates, President Lula marks a break with his predecessor and calls on world leaders to "take concrete action and respect climate agreements". In a country where agribusiness has destroyed almost 50% of the vegetation cover, one of the main challenges of the new presidential term is to increase the agricultural area without cutting down trees. The date has been set for the COP30 in Belem. At the same time, the country's commitment to fiscal and budgetary reform is expected to put public finances on a sounder footing as it embarks on a major structural macroeconomic turnaround. Everything is in place to attract international investors.

Like many institutionals, insurers are exposed to multiple risk components, but the main component is interest rate risk. Interest rate risk stems from liabilities and it is necessary to have exposure in order to hedge this same risk carried under balance sheet liabilities. Fixed income instruments are thus a significant portion of the balance sheet and make the main contribution towards earnings on liabilities. This is a key factor of financial output for the euro-denominated fund.

Nathalie Pistre is Head of Research & SRI at Ostrum, an affiliate of Natixis Investment Managers. She’s been with the Natixis group since 2002. She was responsible for Ostrum's quantitative research and coordinated the integration of ESG into Ostrum's management processes before taking over as head of research and SRI in 2020.

Diversification and bond portfolio management often go hand in hand. There are two reasons for this: firstly, because the multitude and variety of asset classes underlying the bond market means there is a wide gap between the asset considered to be the safest in the world (Treasury notes) and the debt of financially fragile companies (high-yield bonds). Secondly, because at the “lower” level, i.e. within the indices, these asset classes contain hundreds of different securities.

Nathalie Beauvir-Rodes is Head of Sustainable Bond Research and Analysis at Ostrum AM, an affiliate of Natixis Investment Managers. Having moved into the role in 2020, she sees it as a continuation of a career that has been shaped and motivated by investing in sustainable bonds.

Ostrum AM is a longstanding advocate of inclusion and diversity in the workplace, and with this goal in mind we decided for the second time to assess the impact of our initiatives and identify areas for future improvement, relying on an external certification body, Mixity.

The fixed income bond market is comprised of different types of debt. Subordinated debt sits at the lower end of the debt stack, just before equity. In case of a default, repayment of subordinated debt will come after the other bond tranches.  This implies that subordinated debt bears a higher risk for investors. Therefore, in return, subordinated debt bonds compensate investors with higher yields. As a result, the asset class offers a compromise in terms of risk and returns, positioning it in the middle of the capital structure, just between equities and senior bond tranches. European banks represent the largest sub-segment of the subordinated debt asset class. This is related to the regulatory framework and its stringent rules in terms of bank capital requirements. Issuing subordinated debt allows banks to increase their capital ratios while at the same time it serves to strengthen their creditworthiness. In 2023, after a turbulent month of March, the subordinated debt market has moved back in the spotlight. The asset class’s valuations have improved, offering an opportunity to gain access to higher yields from subordinated bonds issued generally by investment grade quality signatures. The subordinated debt market is characterised by a strong “euro” bias, resulting from technical factors (European regulatory framework) that favour issuance versus issuing equity to strengthen capital structures. According to Ostrum Asset Management (Ostrum AM), subordinated debt is an instrument which can be used to diversify fixed-income allocations, offering additional yield pick-up. And it can add value to responsible bond allocation as the sustainable subordinated bond market is developing.

IPE recently published its annual asset management report for Europe and globally.