(Bloomberg) -- JPMorgan Asset Management’s Kelsey Berro says credit markets are prepped for higher rates and she sees value in several sectors.
“We want to start focus on getting higher in quality and focusing on structures that are shorter duration,” the fixed income portfolio manager told Bloomberg TV’s Surveillance on Friday. “That’s securitized credit, bank loans. We’re looking at EM local this year, which is a really interesting one.”
Emerging market local debt “has been one of the only areas of the fixed income market that has had positive returns,” Berro said. “My observation is EM central banks who were hiking like crazy in 2021 have had the foresight and the diligence that developing market central banks didn’t have. The ones that were hiking rates now have the cushion and were able to withstand more of this volatility.”
The Bloomberg Emerging Markets Local Currency Government Universal Index this year is up 0.31%, while the dollar-denominated Emerging Markets Hard Currency Aggregate Index is down more than 4%.
Central banks are certain to bring higher rates to developed markets, led by the U.S. Federal Reserve.
“The market doesn’t like to be surprised and the Fed doesn’t like to surprise the market,” Berro said. “If the market is pricing 50 basis points, the Fed should walk through that door.”
Forecasts show expectations for a greater than 25 basis point increase at the Fed’s March meeting.
The situation in Ukraine, where the possibility of an invasion by Russia has roiled financial markets for weeks, won’t stop the Fed from tightening monetary policy, Berro said. She noted the latest consumer price report, which showed U.S. annual inflation at 7.5%, and a jobs market that’s signaling the U.S. economy “is still red-hot.”
Citing the latest Federal Open Market Committee minutes, Berro said, “They mentioned geopolitical tensions a number of times and they only mentioned it in the context of higher inflation, upside inflation risk. I don’t think this conflict is going to stop the Fed from removing accommodation.”
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