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China’s rising domestic bond defaults could spell offshore bond market rout

Chaori Solar and Baoding Tianwei will forever remain in the history of China’s bond market. In March 2014 the former became the first defaulter in the country’s onshore bond market whilst the latter turned out to be the first state-owned enterprise (SOE) default in China in April 2015. Since then, 24 other bond defaults occurred in the country, the majority of which in the manufacturing, metals…

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16.04.08-CdQ-blog

Russia Trip Notes – catching a cold but still standing up

Russian corporate bonds were one of the best performing asset classes last year, with a total return for the JPM CEMBI Russia index of +26%, despite Russia’s GDP dropping by -3.7% on the back of a hugely challenging economic backdrop and geopolitical headwinds. I recently spent a week in the cold of Moscow’s early spring, meeting banks and corporates to help me assess whether the economic sanct…

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US inflation expectations are rising fast, but inflation is rising faster

2015 saw global inflation risk premia collapse, led by the developed world. US, UK and European annual inflation rates spent most of the year at or around zero with numerous dips into negative territory. Short dated breakevens correspondingly fell to levels that we last saw during the financial crisis (well, to be fair, they went far lower back then, but we are still at crisis levels today), an…

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16.03.03-JT-blog

Growth fears, deflation, rising defaults, tricky markets – a good time to buy US high yield?

It’s been a difficult past few months for all risk assets, including the high yield markets. Weakest of all has been the US, with negative returns of almost 10% over the past year. As part of this re-pricing, spreads have widened significantly, with the US high yield market touching almost 900bps over treasuries. All-in yields also briefly peaked above 10% last month.

Underlying this has been …

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The new wedge in US inflation linked bonds

The new wedge in US inflation linked bonds

There has long been a well-known ‘wedge’ in the UK index linked bond market, since the bonds pay RPI and the Bank of England targets CPI. The wedge is the difference between these two price indices, and over the long term is thought to be approximately 1%. So over the long term, and with all sorts of caveats, RPI will be around 1% higher than CPI. The reasons for the wedge are essentially that …

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Trade History for Sprint 7.875% 2023

High Yield Liquidity: 5 ways to help deal with it

Following the closure of the Third Avenue fund earlier this month, liquidity issues are once again at the forefront of investor’s minds when it comes to the high yield market. Ultimately, conditions will only improve with structural changes to the market but in the meantime we think there are several steps that can be taken to help improve the underlying liquidity profile of a high yield portfo…

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Beware of the pitfalls in US high yield retailers

The fact that commodity-related sectors, like metals & mining and energy, are the highest-yielding and worst performing sub-sectors this year in the broader high yield Index is no surprise. There is a high degree of distressed credits in these sectors suffering on the back of the current low commodity price environment. S&P recently released its summary of sectors with the highest distressed ra…

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M&G Panoramic Outlook: Quasi-Sovereigns in Emerging Markets, by Charles De Quinsonas

It has been quite an eventful year for emerging markets. The fall in oil and commodity prices, the prospect of higher interest rates in the US, the corruption scandal in Brazil and of course the growth slowdown in China have all contributed to increased uncertainty for the asset class. Naturally this uncertainty has impacted performance, weighing down on returns of both hard and local currency …

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Covenant case study – after the good, the bad

We recently highlighted a bond covenant that benefited fixed income investors. After the good, this week we have seen the bad. In this case, a bond covenant may impact bondholders in a detrimental way. Both examples are evidence of how critical it is to have a thorough understanding of bond documentation ahead of investing in a bond.

Kuwait’s third largest bank, Burgan Bank, announced in a regu…

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How bond investors should assess the opportunities in the US high yield energy sector

U.S. high yield energy bonds have sold off recently, virtually reversing their Q1/Q2 rally. The main culprit is, again, oil prices.  The recent re-re pricing in oil has led to energy bonds trading at levels worse than the last time oil sold-off at the beginning of 2015.  In fact, the BAML U.S. high yield energy index this week reached its widest levels (in terms of spreads) since April 2009 at …

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