‘Yield’ Makes Global Fixed-Income Markets Attractive: Allspring

Yields of 4% or greater make global fixed-income investments attractive, says Janet Rilling, senior portfolio manager and head of the Plus Fixed Income team at Allspring Global Investments. 

“There is a fair amount of yield in global fixed-income markets,” said Rilling. “We think that’s a good starting point, because that yield works for you every day.” 

That higher yield is a cushion to offset potential capital declines if interest rates rise somewhat, she said. A sharp rise in rates may lead to negative total return for bond exchange-traded funds, “but this higher level of yield gives you a better break even … when we think about it,” said Rilling, who has managed fixed income portfolios at Allspring and its predecessor firms for nearly 30 years. 

She leads the team managing two of three fixed-income ETFs Allspring launched in December, Allspring Core Plus ETF (APLU) and Allspring Income Plus ETF (AINP). These active bond ETFs are managed with the same philosophy as the firm’s mutual funds. The flagship Core Plus strategy is the foundational fixed-income allocation for Allspring investors and represents the overarching framework for how the fixed-income team invests.

Sixty-five percent of the strategy invests in four core sectors as defined by the Bloomberg US Aggregate Index: US Treasurys, agency debt, investment-grade corporate and securitized credit. The other 35% represents the plus sectors. High yield is one of those sectors, as is global debt, including in developed market sovereign bonds, European credit and emerging markets. 

Securitized Credit

APLU's biggest exposure is securitized credit, at 47.4%, and its biggest overweight is agency mortgage-backed securities. The team expects demand to pick up in 2025 as the yield curve has normalized, she said. If banking regulations relax, there may be more room on balance sheets for banks to buy.

Allspring has a “modest” overweight to commercial mortgage-backed securities, Rilling says, noting the team is looking beyond office space to retail and lodging properties.

APLU is slightly underweight corporate credit, saying spreads between US Treasurys and investment grade and high-yield corporate credit are too tight, making it expensive on a historical basis. 

“To us, it means you're not supposed to be investing indiscriminately,” she says. 

Although the strong economy supports corporate credit, “we don't want to (be) overweight because we do think if there's something unexpected that happens, we're going to see a backup in the spreads. And that, in our minds, would be a good opportunity to add.”