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M&G Panoramic Outlook: The Case for Global Corporate Bond Investing

The euro’s 12-year low against the dollar is a mixed blessing for US companies. On the one hand, the US manufacturing sector is suffering from an uncompetitive currency and lower export revenues. But on the other, rock bottom European interest rates have given US companies an attractive opportunity to issue bonds denominated in euros and lock in cheap financing. For example, in the first quarte…

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M&G Panoramic Outlook: Jim Leaviss’ views for the second half of 2015

Deflation. Liquidity. Greece. These are the words of 2015 if you are a bond investor. The year started off with a bang, or rather a break, when the Swiss National Bank (SNB) announced the surprise abandonment of the peg with the euro. This was only a mere week before the European Central Bank (ECB) embarked upon an historic quantitative easing programme. Deflation took hold in Europe, governmen…

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The case for global corporate bond investing – Wolfgang Bauer

US companies issued a record amount of more than €27 billion of euro-denominated bonds (known as ‘reverse Yankees’) in the first quarter of 2015, taking advantage of the relatively low financing costs on offer in Europe compared to their home market. This is just one example of how corporate issuers routinely capitalise on local corporate bond market supply and demand dynamics in search of chea…

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Jim Leaviss’ view ahead of the second half of 2015 in bond markets

It may only be June as I write this, but it already feels as if we have crammed a whole year’s worth of events into the first six months of 2015.

The year kicked off at a whirlwind pace, with the long-awaited announcement by the European Central Bank (ECB) that it would finally begin its quantitative easing (QE) programme nearly upstaged by the Swiss National Bank’s surprise move shortly befo…

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Argentina saw a huge rebound in growth when it abandoned its dollar peg

Greece is not Argentina: don’t expect exports to drive growth if Greece leaves the euro

I have heard it said, semi-seriously, that the biggest risk for the Eurozone isn’t that Greece leaves the single currency and its economy collapses, but that it leaves and thrives.  In this scenario Greece starts again, debt free, able to adapt fiscal easing rather than austerity, and with a devalued “new drachma” encouraging an influx of tourists and a manufacturing and agricultural export boo…

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The inherent monetary policy lag

Timing the Fed Rate Hike

The graph below shows US unemployment alongside the Fed rate over a period of 45 years. From this you can observe the broad relationship between the two, specifically the time delays between Fed rate hikes and the upturn in employment which has historically followed. This time the Fed have delayed the rate hike for a number of reasons, but if history is anything to go by, we can perhaps use thi…

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The M&G YouGov Inflation Expectations Survey – Q2 2015

A wide range of household decisions – like whether to buy a house, take out a car loan or ask for a pay rise – are affected by expectations about future inflation. Central bankers believe that by closely monitoring inflation expectations they can deepen their understanding about the economic behaviour of consumers. Surveys like the M&G YouGov Inflation Expectations Survey are extremely interest…

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Investment grade corporate bond market performance in 2015

I’ve spent a bit of time in recent days looking at the performance of global investment grade (IG) credit. The chart below shows the year-to-date (YTD) ranges of asset swap (ASW) spreads for USD BBB 5-10 year corporate bond sectors.

Here are our three key takeaways:

  1. First, on the bright side, the spread of the USD BBB index as a whole has tightened by 18 bps YTD. Despite being modest in magni…

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XPO Logistics

XPO Logistics. A $2bn high yield transaction and why we didn’t play.

As value investors we would generally assert that every financial asset has its price. Few bond market offerings tick all the boxes, but if we are to be suitably compensated, and subject to certain red lines, we are generally sanguine.

Yesterday saw XPO Logistics, a third party US based logistics firm raise $2bn equivalent of debt across Euros and Dollars to part fund its acquisition of Norbert…

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Why have bonds sold off – and why did they even rally in the first place?

Ben Bernanke has spent a good deal of time explaining on his blog why he thinks interest rates are so low (something that Martin Wolf wrote a column on earlier this week).  An extremely quick and dirty summary is low nominal interest rates and yields can be explained by low inflation, however this doesn’t explain why real interest rates are also low.  Bernanke doesn’t think low real interest ra…

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