Perhaps the biggest lesson from last month is that all asset classes went down together. Similarly, it's likely that as the economy "reflates" due to lower rates and rock-bottom valuations, all asset classes should rise in tandem. Deciding which has the largest upside potential is a tricky endeavor.
From a valuation standpoint, bank loans appear to be the cheapest asset class. Many loans are priced for a worst-case scenario, and trade at less than 60 cents on the dollar. But with few natural buyers and the market for leveraged loan portfolios like CDOs and CLOs all but shut down, it's a bit difficult to make an argument to be the first ones in this trade.
High-yield spreads have certainly widened, but they not reflect the sudden increase in bankruptcies that accompany economic slowdowns. Bankruptcy rates have been kept artificially low by a loan market that has bailed out trouble firms by putting their credit in the equity portion of leveraged structures, but that game is all but over.
Global fixed income is appealing. With a rush to lower rates, investors will likely earn an attractive return on government debt in countries where rates have far to fall, but one should hedge against a rising dollar.
