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The hunt for emerging market yield is killing covenants

Would you buy a 7-year unsecured bond at 6% yield from a B1/B+ rated Brazilian airline (first time issuer) with well-below-standard credit covenant protection for investors? Many did last week. Few would have a year ago.

This year, many emerging market bond investors have been tempted to lend further down the credit spectrum in search for higher yields. Strong inflows into the asset class combi…

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Argentina’s century bond: much ado about nothing

Argentina’s recently issued century bond deal was unexpected in terms of timing and maturity. Century bonds in Emerging Markets (EM) are rare (we think the table below is pretty exhaustive) and they grab the headlines, especially when issued by a credit that has defaulted many (many) times, like Argentina.

Are century bonds that much risker?

  1. Duration: As we wrote previously, the duration of …

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Eurobonds: one bond to fund them all

The German federal election in September still seems far away. However, for the first time in years, it appears possible that Angela Merkel could actually lose the election. Martin Schulz, Chancellor candidate and chairman of the Social Democratic Party, is having some early signs of success in the polls and is gaining momentum. As a result, investors in European (and UK ) debt might want to re…

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A wrap up of 2016 bond and currency market performance

Turning back the clock to the first week of 2016, fears of a Chinese slowdown and the Federal Reserve beginning to normalise rates hit stock markets hard. By Valentine’s Day bond yields had fallen to – what was then – all-time lows.  But we hadn’t seen anything yet. Ongoing ECB QE, Brexit, UK QE, novel Japanese monetary policy, president-elect Trump and ECB tapering. In a year of political and …

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Japan research trip: how will the Bank of Japan exit YCC?

Guest contributor – Jean-Paul Jaegers, CFA, CQF (Senior Investment Strategist, Prudential Portfolio Management Group)

Recently Jim Leaviss and I travelled to Tokyo to discuss local economic developments and Bank of Japan (BoJ) policy with economists and analysts based in Tokyo.

There was generally broad agreement that the potential path for Japanese government bond yields (JGBs) is asymmetric. …

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A whole new ball game. M&G 2017 economic and bond market outlook.

In our latest Panoramic Outlook, Jim Leaviss has a look at the forces that resulted in a tumultuous year for establishment politics, the ECB’s quantitative easing dilemma and the prospects for emerging markets in 2017. For the first time since the financial crisis, it appears that bond yields will come under sustained pressure as central banks gradually remove monetary stimulus. The impacts of …

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Fixed versus floaters: four reasons to like high yield floating rate notes right now

With the market currently pricing in an 84% chance of a US interest rate hike in December it appears likely that there is some pressure for bond yields to move higher on a medium term view. This is on top of the re-pricing that we have already seen in risk-free assets like US Treasuries over the course of the past four months. High yield assets are not immune from the laws of bond maths, with l…

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Three reasons we like UK residential mortgage backed securities

The residential mortgage backed securities (RMBS) market has had a good run of late, so is the sector still good value and is there room for it to rally further?

The short answer:  Yes.

The longer answer: There are a number of factors that should prove supportive for RMBS going forward, a few of which are discussed below.

  1. Structure

The Big Short has been available on Netflix for a couple of m…

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It’s Halloween. Here are some scary charts.

The financial world is a scary place. Debt, disinflation and deteriorating growth have plagued investors over the past year, plunging bond yields into negative territory in a number of countries. Perhaps most frighteningly, it is now eight years since the financial crisis and central banks in the developed world continue to employ an ultra-easy monetary policy stance. With government bond marke…

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Either the demographic bond models are broken, or yields are headed to 10%.

For fixed income fund managers it was once the case that if you understood the evolution of the relative sizes of the various cohorts of the young, the working, and the retired in a population, you could predict bond returns.  Lots of workers relative to the “unproductive” young or elderly meant low wage pressures, lots of demand for savings assets such as bonds, and lower government borrowing….

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