Monthly Archives:

April 2020

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 …

Read the article

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…

Read the article

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…

Read the article

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 …

Read the article

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…

Read the article

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…

Read the article

Africa’s Covid-19 response: official financing and calls for debt relief

To date, there have been several packages announced by multilateral financiers that will support African countries with their Covid-19 responses. These packages are urgently needed: first, to finance the health response and, second, to cushion the economic impact.

The IMF has announced $1 trillion of firepower to help the global response to the health, humanitarian and economic impacts of …

Read the article

Liquidity stress in the US mortgage market

The intricacies of the US residential mortgage market may be unfamiliar to many European investors but the recent technical factors at play have made it one of the most interesting parts of the credit markets recently.  Over the last few weeks, we have seen acute liquidity issues and forced selling from market participants in certain areas.

The US residential mortgage market covers a wide v…

Read the article