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European credit: divergence between the bond and credit derivatives markets

There is a general belief in markets that the economic cycle follows the US – and therefore that you can’t have a recession in a developed market without a US recession first.  Yes, the US economy is the biggest out there, and with general market sentiment being that we are late cycle it is understandable that everyone’s focus is on the US data and its flattening yield curve.

But what has reall…

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The Royal Commission into Misconduct: A Deceptive Smokescreen for Australian Bank Bond Investors?

Last week’s conclusion of the Royal Commission into misconduct in Australia’s financial services sector has rightfully made international headlines. After digesting the 1011-page report, investors breathed a sigh of relief and pushed Australian bank shares sharply higher. The Commission’s findings and recommendations have been well-documented in the popular press (here), and the debates around …

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Bankers & Bolsheviks: International Finance and the Russian Revolution by Hassan Malik. Our interview with the author; and win a copy of his book.

In the years leading up to World War 1, and then the Russian Revolution in 1917, Russia had become the world’s largest net international debtor.  It was borrowing heavily to finance industrialisation (railroads, oil, iron and cotton production) and as its population grew it saw rapid economic growth.  WW1, and the earlier 1905 conflict with Japan had also resulted in rising debt.  At the same t…

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Bond Vigilantes Weekly: 2016 all over again?

Global bond markets rallied after the US Federal Reserve (Fed) signalled on Wednesday what financial markets had been pricing in for months: the central bank will most likely retract from its rate hiking plans this year, given the global economic slowdown, lower oil prices and generally muted domestic inflation. The Fed also indicated its balance sheet may not shrink as much as expected as it n…

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High Yield in 2019 – floating or fixed?

As we all know, 2018 turned out to be a tough year for most asset classes, not least High Yield (HY) bonds. The sell-off in the fourth quarter was particularly quick and brutal compared to the recent lulls of benign volatility under the blanket of central bank largesse. Global HY lost a few percentage points in pure local currency terms in 2018, whilst the lower beta and more senior secured hea…

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High Yield managers need to up their ESG game: 4 recommendations

Not that we needed anybody’s reassurance, but the UK government’s decision that pension fund trustees must consider financially material ESG (Environmental, Social and Governance) factors in their assessments, definitely helps those who believe that sustainability is becoming a need more than a choice – for society and investors alike.

In my view, an ESG lens can help monitor qualitative risks …

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The Rise of Emerging Market Corporate Bonds

Few investors would have bet on emerging market (“EM”) corporate bonds fifteen years ago. In 2004 the EM external (also known as hard-currency) corporate bond universe was relatively small at approximately US$ 270bn. By 2009 the asset class had more than doubled to US$ 600bn driven by strong economic expansion across developing economies notably the BRIC countries. Since the global financial cr…

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Bond Vigilantes Weekly: Globalisation-mecca Davos loses shine as trade wanes

When the presidents of the US, France and Britain cancel their trip to the World Economic Forum at Davos – the mecca of globalisation over the past two decades – to face domestic challenges, no wonder investors are worried about falling global trade, inward-looking policies and hence, lower global growth. This week’s data seems to vindicate such fears: US-China trade tensions escalated on specu…

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The war of the indices: which inflation measure to use?

After a lengthy review, Britain’s House of Lords has finally said that the inflation index presently used to price inflation-linked securities, train fares or student loans should be replaced. Instead, the Consumer Price Index (CPI) should become the new benchmark, as it includes more items and has an overall higher credibility. So far, so good – except if you are an investor.

The statistics b…

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Panoramic Weekly: The ayes to the left, the noes to the right: the pound has it

Although world markets depend more on Fedspeak and China than on British politics, when the UK House speaker announced (in traditional centuries-old fashion) that the “noes” opposing the government’s Brexit plan had won – inadvertently, he helped reduce sugar levels in Europe. Investors’ interpretation that a hard or disorderly departure from the EU is now less likely strengthened the pound and…

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