There is more than one way to skin a cat for credit investors. Those looking for credit exposure can do so through either owning the debt issued by an issuer or by selling credit default swap (CDS) protection for the same issuer. The differential in price between the corporate bond and CDS contract can mean the difference between outperforming and underperforming in a world of tight credit spre…Read the article
Whether or not you believe that the ECB moves to full government bond purchase quantitative easing this week (and the market overwhelmingly says that it’s only a remote possibility) the fact that German bund yields at the 2 year maturity remain positive is a bit surprising. The 2 year bund currently yields 0.05%, lower than the 0.2% it started the year at, but higher than you might have expecte…Read the article
Are investors still compensated adequately for investing in peripheral rather than core European debt, or has the on-going convergence eroded debt valuation differentials altogether? In his latest blog entry, James highlighted five signs indicating that the bond markets consider the Eurozone crisis resolved. Inter alia, James pointed out that risk premiums for peripheral vs. core European high …Read the article
Regardless of your opinion on the merit of the ECB’s policy, there is little doubt that the efficacy of Mario Draghi’s various statements and comments over the past 2 years has been radical. Indeed there are several signs in the bond markets that investors believe the crisis is over. Here are some examples:
1) Spanish 10 yr yields have fallen to 3.2%, this is lower than at any time since…Read the article
The high yield market rightly pays a good deal of attention to leverage trends (the relationship between debt and earnings). The larger the quantum of debt a business carries relative to its earnings, the greater the risk. Other metrics are arguably as important, though it is the leverage metric that consistently garners the lion’s share of attention. With spreads near the post Lehman tights, i…Read the article
Investors in government bonds – historically seen as a low volatile and safe asset class – have had to get to grips with assessing credit risk as well as duration risk in their portfolios. It is simply no longer the case that investors can safely lend to a government without first assessing the government’s willingness and ability to pay back the borrowed sum. This has had a large impact on gov…Read the article
The carry trade, the grab for yield – call it what you will, but this has been a persistent fact of life in today’s investment climate, especially as larger cohorts of the developed world join the ranks of the retired. As Mr Foreman points out above, the financial aspect of retirement isn’t really dominated by how much capital you might have, but how much income can be generated from your savi…Read the article
My last research trip video to Asia was deemed by our marketing department to be so bad that we all had to be sat down and told what would be common sense to most people; apparently it’s not a great idea to speak to camera next to a busy airport runway, and you can’t see anything if you record yourself in your hotel room at night with the main lights off. So hopefully this effort is a slight im…Read the article
It’s fair to say that we have been toning down our view on the high yield market of late. We could well see returns in the high single digits for 2013, but the potential for more substantial capital gains is less apparent in today’s context.
This does, however, ignore quite a powerful feature of the current high yield environment – the scope for exploiting opportunities and pricing dislocations…Read the article
In 2012, the Reserve Bank of Australia cut its cash rate five times and by a total of 1.25%. That is a big move in interest rates for an economy growing at 3.1%, an unemployment rate of 5.4% and inflation sitting bang-on target at 2.0%. The RBA cash rate is now equal to the 50-year low seen during the 2009 recession. So what has got the RBA so nervous?
One word: consumption. Around 54% of Austr…Read the article