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Road map of a t-shaped “recession”: where are we now?

We are currently in the throes of the sharpest and largest economic downturn the modern global economy has ever seen. However, as I wrote in March this is very different from previous recessions.

To recap, a recession has three stages:

Stage 1: into recession

A rapid, record collapse in economic growth as normal economic life is dramatically curtailed for public health reasons.

St…

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Quo vadis, BTPs?

It’s been a wild ride in May for Italian government bonds, so-called Buoni del Tesoro Poliannuali (BTPs). The yield spread of 10-year BTPs over 10yr German Bunds first rose to c. 250 basis points (bps) after the German Constitutional Court had ruled that the ECB’s Public Sector Purchase Programme (PSPP) was partly unconstitutional. Subsequently, the Italian risk premium collapsed to c. 190 bps…

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Tourism drop in CEE and CIS – many losers but also some beneficiaries?

Summer has arrived, and so should the main tourist season in Europe in a normal year. However, as we know, this year has been anything but normal. With lockdown endings in sight across the majority of countries in the region, most are preparing to welcome tourists back. Some have already opened their borders for EU visitors, while many prepare to open them for everyone from late June or early …

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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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