Are investors quiet quitting the US?

Lynda Schweitzer, CFA, Portfolio Manager and Co-Head of Loomis Sayles’ Global Fixed Income Team, believes that while investors may be underestimating the long-term implications of the Iran War it could also create regional differences that will offer investment opportunities.

In this podcast, I chat to Lynda about:

• Why investors are ‘quiet quitting’ the US
• Her views on Australian fixed income and the Aussie dollar
• Why investors should consider a greater allocation to global fixed income
• How her team finds mispriced bonds and where they see opportunity right now
• Her outlook for the global economy, fixed income yields, and inflation

Transcript

Louise Watson: Hello and welcome to Navigating the Noise, a podcast by Natixis Investment Managers, where we bring you insights from our global collective of experts to help you make better investment decisions. I'm Louise Watson, and today I'll be joined by Lynda Schweitzer.

Lynda is a portfolio manager and co-head of Loomis Sayles' Global Fixed Income Team. She joined Loomis Sayles in 2001 as a global portfolio specialist and trader, and prior to that, Lynda worked at Putnam Investments and State Street Bank.

Lynda and the Global Fixed Income Team have been managing global fixed income portfolios for Australian investors since 1998. So we're lucky to see them in Australia pretty regularly.

Lynda, welcome. We're delighted to have you with us on the podcast today. And I know you're based in Boston, doing this call from Boston, and your sporting teams are killing it at the moment over there.

Lynda Schweitzer: Yeah, they are, Louise. We had our American football team make it back to the Super Bowl for the first time in a long time. And both our hockey team, the Bruins, and our basketball team, the Celtics, are in the playoffs right now. So having a very strong year on the sports scene.

Louise: Sounds just like our Global Bond Fund. Awesome. Let's get into some questions. So Loomis Sayles was started in Boston in 1926, and you're celebrating 100 years this year. It's a massive achievement. How are you celebrating the centenary, and what does it mean to you?

Lynda: It's such a great thing to be part of a long tradition of fixed income active management. I also celebrate my 25th year anniversary at Loomis Sayles this year, and I have just enjoyed being a part of the legacy. There are events all through the year, and I'm travelling to Europe and the UK later this year to take part in client events for the Centennial, but really, I'm just excited to be a part of a firm that has this legacy.

Louise: Yeah, we're celebrating that event in Australia in October, and we can't wait to help Loomis Sayles mark this really important milestone. But before we get there, let's cover some more challenging ground. The war in Iran has changed the world and the global economy significantly in a short space of time. What do you think the long-term implications of the war might be?

Lynda: I think we're going to spend the next six to twelve months figuring that out. The market right now, as of today, wants to act like the war didn't happen, that the long-term impacts are fleeting. We expect to see higher inflation, but I hesitate to use that word 'transitory' again, but it seems like that might be how the market is viewing it. I think, as a team, we're a little bit more skeptical that it is fleeting. We think there will be long-term supply disruptions that will have an impact on both global growth and longer-term inflation.

Louise: And our investors are always asking us where you're seeing the biggest opportunities in global fixed income right now. Where are you seeing some of those opportunities starting to bubble up?

Lynda: We still like many of the EM (emerging markets) local markets where they've had decent economic cycles. They're starting to cut rates, yields are higher, so we're seeing good carry.

With the advent of the war, we're going to have to be a little more specific about which markets we invest in and not, because some regions will be more unduly impacted by the higher oil price and the supply disruption.

But we do think there are some nice spots, like Latin America, where there are some good opportunities for excess returns.

Louise: Now, are there any risks that you and the team are focused on right now that you think investors aren't paying enough attention to?

Lynda: I go back to my answer to the question about the war. The market has taken credit spreads back to almost (as tight as) we saw before the war started. Equity markets are very strong and making all-time highs. So I think the market maybe is underestimating the long-term implications of the war, the higher oil price, the impact on consumers and demand destruction. But we'll see. Corporate health is very strong, and so there might be a good enough cushion there to make sure that it doesn't impact earnings, and the spreads could be justified.

Louise: And I've heard you talk about investors 'quiet quitting' the US. Can you explain what this is and whether you think this trend is still in play?

Lynda: For a long time, we had the US exceptionalism story, and the dollar was strong, the US was outperforming on a global growth story. At the beginning of 2025, we had the rest of the world starting to show stronger signs of growth, so narrowing that growth differential, and the dollar was under some pressure. Then add on top of that 'Liberation Day' and the unreliability of the US administration, and we started to see calls for 'sell America' or 'hedge America'. I'm not sure I buy that it's going to be this kind of one-time, big move, but I do think incrementally investors are going to make different decisions with their next marginal investment dollar. They're going to choose to go away from the US if they can, or hedge a bit more of their dollar exposure, or go back to base, just because of the uncertainty around US policies.

Louise: It's tempting in uncertain markets for investors to sit on the sidelines or stick with their current allocations. Why should investors consider allocating more to the global bond portfolio? Is there an opportunity in uncertainty?

Lynda: There is definitely opportunity in uncertainty. I think the war has introduced a level of volatility and a level of uncertainty that makes events a bit binary. So maybe jumping in at that point isn't the right story.

But as the ceasefire continues, as we start to return to more normal, then I think longer-term implications from the higher oil price will create regional differences that will offer opportunities.

The volatility that we saw in particular corporates or emerging market countries, I think will play out and offer opportunities.

So I think that as we go forward, and if the market's right and we return to normal economic cycles, we're back to this environment where countries are at different points in their economic cycle. So that also creates opportunity. And if we return to that, at the beginning of this year, I was very excited about the relative value opportunities that we might see. And if the market's right and the war is behind us, then we could see that again.

Louise: What's your current view on Australian fixed income markets, and do you hold any Australian bonds?

Lynda: We are overweight both Australian bonds and the currency. The currency has been a position we've held for quite a while. It's done really well. With the advent of the war, it's almost been defensive-like versus many other currencies. And so it's a position that has benefited us.

We're also overweight the bond market, which sounds in conflict to the overweight of the currency, but it's the highest G10 yield. We like that. Markets are mostly priced for two more hikes, which we think is reasonable. So either the market starts to navigate around the hikes, or we just collect our yield. And so we like both the bonds and the currency.

Louise: And Aussie investors tend to have a domestic bias in equities and bonds. Why should investors consider allocating part of their fixed income allocation outside Australia?

Lynda: A couple of reasons. One, I think that we like Aussie rates and currency right now, but that isn't always the case. So I think having a way to diversify away from Australia when it does start to rally too much, or where the yields aren't attractive, or start to sell off more, you want other choices. And the global fixed income investment market is just so vast, and there are so many opportunities. An active manager like us can take advantage of those around the globe.

And while Australia is the highest yield in G10, EM has even higher yields that offer good excess return possibilities.

Louise: And you mentioned how vast the global fixed income landscape really is. Can you talk us through how you find these opportunities and give us examples from the past?

Lynda: Sure. So we have a deep research effort that covers macro, sovereign, credit, and securitised. And they're looking across the global landscape for best ideas. Our analysts are doing the bottom-up research and are experts on their issuers, whether that's a country or a corporate. We're looking for those mispricings. We're looking for things that the market maybe has gotten a little bit wrong.

Things like Brazil heading into this election, we're still very favourable, even though the election could go either way. But our analyst has a view that they'll resume rate cuts, which will be good for the market, as well as the election, even though it could go either way, is long-term okay for Brazil.

Other things, like UK water, when Thames <Water> was under pressure within the UK market, all of the UK water utilities widened on the back of that. Our analyst was able to help us identify those which are money good for the long term that don't have the same issues that Thames did, and those have been a good performer for us over the last twelve months.

Louise: The yields for fixed income have increased significantly in recent years alongside higher interest rates, making fixed income a more attractive investment. What's your outlook for global fixed income now, and where do you think yields might go in the next six to twelve months?

Lynda: I wish I knew where yields were going in the next six to twelve months. So much of it does depend on the long-term implications of the war on inflation and on growth.

I do think that places like the UK and Europe are priced for hikes. I have a hard time imagining that they will hike in this environment. So yields there, I think, could rally. We just need a little bit more normalisation around the war and confidence that the ceasefire is going to last. I think that, as I mentioned earlier, the differentiation among economic cycles in the countries means we could have yields in some go up and some go down. So I think there will be good relative value opportunities overall.

Louise: Well thank you Lynda. It's wonderful to be able to share your insights with investors at a time of such great macroeconomic change. If you enjoyed the episode, please tune in again soon to hear more from our global collective of experts.