In a world crowded into US assets, an unconstrained approach can set you free

Please note, this interview was recorded Monday, 2 March 2026

Fixed income investors have spent much of the past few years focused on the same macro questions: will inflation fall fast enough, will central banks cut rates, and will recession finally arrive?

But according to Payden & Rygel Managing Director Eric Souders, the bigger issue today may not be the direction of markets, but the crowding within them. 

Global portfolios have become heavily concentrated in US assets, leaving investors exposed if that positioning begins to unwind. In that environment, he argues, flexibility matters.

At the same time, the global economy is no longer moving through a single, unified cycle. Artificial intelligence investment and infrastructure spending are creating early-cycle dynamics. The labour market is showing mid-cycle cooling, with wage growth moderating. Meanwhile, parts of credit markets are already displaying late-cycle behaviour, with investors becoming far more selective.

That unusual backdrop has led the firm to describe the current environment as “one economy, three cycles", which he believes will lead to a specific outcome that investors need to navigate. 

“The bottom line for us is dispersion. That is the through line across those three cycles. We think we have entered a period where it is less about market beta and directionality and more about dispersion.”

In this interview, Souders explains why dispersion is rising across markets, why emerging markets remain a high-conviction call, and why, in a world crowded into US assets, an unconstrained approach can set investors free.

INTERVIEW SUMMARY

Flexibility matters in fixed income

Eric Souders believes the most important implication of today’s macro backdrop is not simply where interest rates go next, but how unevenly opportunities are now appearing across global credit markets. In that environment, he argues, flexibility becomes critical.

Traditional fixed income portfolios are typically constructed relative to benchmarks such as the global aggregate bond index. While those benchmarks remain useful reference points, Souders believes they can also limit investors’ ability to capture opportunities that sit outside traditional bond sectors.

“The global aggregate benchmark has been around for decades and the methodology has not evolved consistent with global capital markets.”

Those indices are heavily weighted toward developed-market government bonds, agency mortgages, and investment-grade corporate debt. However, they include little exposure to other parts of the fixed income universe that have expanded significantly over the past two decades.

“That benchmark effectively contains none of securitised credit, very little emerging markets and no high yield corporates or bank loans.”

Removing the benchmark constraint allows Payden & Rygel’s strategy to allocate capital across the entire public fixed income market. That includes emerging market debt, high yield credit and securitised assets such as asset-backed securities and collateralised loan obligations.

“We can utilise all parts of public fixed income to identify areas of opportunity irrespective of what is in that benchmark.”

For Souders, that broader toolkit allows the portfolio to manage interest rate exposure, credit risk and currency risk more dynamically.

Credit research drives the edge

While the strategy has broad flexibility, Souders emphasises that the firm’s edge ultimately comes down to credit research. Payden & Rygel has built specialised teams covering different areas of global credit markets, allowing them to assess opportunities across sectors and geographies.

“Credit is where we have an edge as a firm.”

That expertise becomes particularly valuable in markets where dispersion is high and outcomes vary widely between issuers, sectors and countries. One area where the firm believes its research depth stands out is emerging markets.

“Our emerging markets team has been around since the late 1990s. You would be hard pressed to find many firms with 25 to 30 years of experience in emerging markets.”

The emerging market opportunity set has expanded dramatically over the past two decades. What was once a relatively narrow universe has grown into a diverse group of more than 80 sovereign issuers, offering investors a far broader set of opportunities.

Why emerging markets look compelling

Despite that growth, Souders believes emerging markets remain underappreciated by global investors. Historically, the asset class has often been viewed through a single lens dominated by China.

“Emerging markets have historically been viewed as a monolith. It is China and then everything else.”

But the current cycle highlights how diverse the asset class has become. Souders notes that whilst China is not doing great, emerging markets are doing quite well.

Several factors support the firm’s constructive outlook. One is the level of real interest rates, which remain elevated across many emerging economies. During the inflation surge of 2022 and 2023, many emerging-market central banks moved earlier than their developed-market peers to tighten policy.

“Emerging markets central banks hiked rates before developed markets because they know what inflation does to their currencies and economies.”

As inflation has moderated, that early tightening has left many emerging markets offering attractive real yields relative to developed markets.

Another important driver is the global investment cycle tied to artificial intelligence and infrastructure development. Emerging markets play a central role in supplying the commodities and natural resources required for that expansion.

“Emerging markets control commodities and natural resources, and the world is going to need that.”

At the same time, global investor positioning remains heavily skewed toward US assets, with Souders pointing out that the world is overweight US credit, overweight US equities and very underweight emerging markets. That concentration creates the potential for capital to rotate toward emerging markets if investors seek diversification.

“It is actually a very interesting form of diversification in portfolios.”

Managing downside risk and portfolio role

Despite the opportunities available across global credit markets, Souders stresses that fixed income investing is fundamentally about managing downside risk. Unlike equities, credit investments typically offer limited upside potential.

“When you invest in credit you are underwriting downside, not necessarily a lot of upside.”

As a result, careful risk management remains central to portfolio construction. One approach the strategy uses is maintaining a shorter maturity profile, which can reduce sensitivity to market volatility.

“Shorter maturity bonds tend to be more resilient from a price standpoint than longer maturity bonds.”

The portfolio also uses derivatives selectively to hedge risks. These tools allow the team to manage potential shocks ranging from geopolitical risks to sudden market dislocations.

For Australian investors already holding domestic bonds, Souders believes a global unconstrained strategy can add meaningful diversification. He suggests investors start by reconsidering the role fixed income plays within their portfolios.

“Investors should think about what role fixed income plays and what role duration plays in their portfolio.”

In a world where inflation may remain structurally higher than during the ultra-low rate era of the 2000s and 2010s, the traditional relationship between bonds and equities may evolve. That shift increases the value of flexibility in portfolio construction.

“If the environment is characterised by dispersion, flexibility becomes your friend.”

An unconstrained global approach, he argues, allows investors to access opportunities across a much broader opportunity set than traditional benchmark-aware bond strategies.

Managed Fund

Payden Global Income Opportunities Fund

Global Fixed Income

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