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David Marshak

David Marshak
David Marshak
Fixed Income Portfolio Manager

Industry experience

With Wellington

26
17

David is a fixed income portfolio manager and member of the Bank Loan Investment team and Bank Loan Strategy Group. His primary focus is on Wellington Management’s subadvised bank loan mutual funds.

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Since January 2021, many investors have come around to the view that the US appears poised for a strong rebound in economic growth, driven by fiscal stimulus, vaccine administration, and economic reopenings. Meanwhile, bottlenecks in global supply chains have made it more challenging to meet increased demand for goods and services, causing input costs to rise across a number of industries.

Taken together, these developments have led to mounting inflation expectations and upward movements in interest rates. Year to date through 12 April 2021, the 10-year US Treasury yield has risen 75 basis points (bps) to 1.67%. The spread between the fed funds rate and the US 10-year Treasury note, a general proxy for yield-curve steepness, is also up meaningfully.

I believe the risk of further rises in inflation expectations and interest rates is not yet fully priced into markets. There are steps fixed income investors can take now to manage this growing risk to their portfolios. One way to do so may be via allocations to higher-income, shorter-duration assets such as floating-rate loans (FRLs).

The “duration rotation” is underway

In today’s low-yield world, a steepening yield curve can have a material negative impact on…

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Fixed Income Portfolio Manager
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Over the past few weeks, growing concerns around the coronavirus and its potential impact on the global economy have caused steep declines in financial markets. The bank loan market has not been immune from this weakness: The average dollar price of the S&P/LSTA Leveraged Loan Index1 was 78.4 as of 19 March.

Current index price levels imply that roughly 45% of the loan market is going to default.2 To put that in historical context, the highest trailing 12-month default rate actually experienced by the bank loan market was just above 12% in November 2009.3

Using a medium-term outlook, it is our view that the market is oversold at these levels. While we do expect the default rate to increase, primarily in the commodity-sensitive sectors, we don’t believe it will…

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Boston
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