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What does the CDS basis mean for credit investors?

Financial markets are generally considered to be efficient, particularly in the long run. However, in the short term inefficiencies might emerge, especially in times of severe market stress conditions such as the one we are currently experiencing. This can give active investors an opportunity to take advantage of these dislocations until the market corrects itself.

Today amongst various di…

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Navigating the crisis in frontier Asia: does a debt suspension make sense?

Sri Lanka, Pakistan and Mongolia have each been severely impacted by COVID-19, albeit in different ways. These frontier economies each straddle two worlds. They’re emerging markets in the sense they’ve had access to global debt markets, with their eurobonds included in JP Morgan’s emerging market bond index. But their credit ratings are far below those of investment grade sovereigns, such as I…

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Primary market volumes are a double-edged sword

One of the main topics in the
investment grade (IG) corporate bond space over the past weeks has been frantic
primary market activity. Every single day, with very few exceptions, there has
been a relentless flood of new corporate bond issues. Year-to-date supply has
risen to around $970 billion and c. €310 billion in U.S. and European IG
primary markets, respectively, thus exceeding by far new…

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US Election 2020: Is it still the economy, stupid?

James Carville was candidate Bill Clinton’s chief strategist for the 1992 election. When asked to emphasise the single most important issue to voters, Carville responded: “It’s the economy, stupid!” Incumbent President George W.H. Bush at that time had seen his poll numbers surge post the successful Operation Desert Storm in Kuwait, but at home the US economy had started to slip into a recessi…

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Fallen angels – how to ride the upcoming wave

The coronavirus pandemic and low oil prices have led to a surge in ‘fallen angels’, companies downgraded from investment grade to sub-investment grade. Ford, Kraft Heinz, Renault and Marks & Spencer are amongst the issuers that have become fallen angels so far this year.

We often see price falls in such downgraded  bonds. Investment grade (IG) and high yield (HY) are typically treated …

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China’s bond markets once again prove resilient amidst COVID-19 crisis

Earlier this week, China’s Central Bank (the PBoC) announced a further cut to the 1 year loan prime rate, one of its key interest rates, from 4.05% to 3.85%. This further loosening of monetary policy demonstrates that, as China attempts to extricate itself from the COVID-19 crisis, the domestic and international pressures on the world’s second largest economy remain severe, and the outlook hi…

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Switzerland has discovered the lower bound. Will other central banks follow?

While it is certainly too early fully to understand the impact of COVID-19 on economies around the globe, one thing is for sure: the shock to economic activity is going to be enormous in the short run as sectors of the economy simply shut down. Having experienced one of the biggest corrections in history last month, financial markets have started to be somewhat more upbeat of late. Market part…

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Beyond Dividend Cuts – Crisis Implications for Bank Debt Investors

In the last two weeks, both the ECB and the PRA effectively demanded that banks stop paying shareholder dividends and buying back stock for at least six months. The announcements, even though they were leaked in the press well before official confirmation, sent bank share prices plummeting, as investors saw what had been improving income streams in recent years come to an abrupt halt. It also …

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High Yield in the Covid Crash: Risky, but potentially very rewarding

1. What’ s happened to the high yield market in the last month?

We’ve seen negative returns of -12.7% for the global high yield market. Following a weak February this brought the Q1 return to -13.7%. To put this in context, this was the second worst month and second worst quarter since 1998. Only October 2008 and Q4 2008 saw a more negative drawdown for the market.

2. Can it get worse…

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Has globalisation peaked? If so, what are the implications?

“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”

If that is the case then developed economies have not encountered any muggers, armed robbers or hit men for some time.

That quote came from Ronald Reagan, candidate for US President in the late 1970s, back when controlling inflation was one of the biggest challenges for governments and ce…

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