EM local currency debt
One notable bright spot in fixed income, particularly when it comes to valuations, is EM local currency debt, according to Paolini.
‘As well as offering some of the highest yields in mainstream fixed income, EM corporate bonds tend to have shorter durations, making them less vulnerable to interest rate hikes,’ he said.
‘The opportunity is far from risk free, however – possible threats to performance include a stronger US dollar and Trump’s protectionist stance on global trade.’
Among EMs, Paolini said he prefers Latin America due to encouraging signs of progress on structural reform as well as the region's exposure to commodities and energy, whose prices should rise.