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 …Read the article
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…Read the article
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…Read the article
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 …Read the article
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…Read the article
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 …Read the article
We’ve written in the past about some of the concerns we have over the gradual weakening of bond covenants (the legal language that protects the right of bondholders) over the past few years. However, today we have seen a real world instance of a bond covenant kicking in to the benefit of existing holders, namely the change of control. This illustrates how and why such covenants can help protect…Read the article
As value investors we would generally assert that every financial asset has its price. Few bond market offerings tick all the boxes, but if we are to be suitably compensated, and subject to certain red lines, we are generally sanguine.
Yesterday saw XPO Logistics, a third party US based logistics firm raise $2bn equivalent of debt across Euros and Dollars to part fund its acquisition of Norbert…Read the article
Ben Bernanke has spent a good deal of time explaining on his blog why he thinks interest rates are so low (something that Martin Wolf wrote a column on earlier this week). An extremely quick and dirty summary is low nominal interest rates and yields can be explained by low inflation, however this doesn’t explain why real interest rates are also low. Bernanke doesn’t think low real interest ra…Read the article
While generating a lot of concerns, one of the benefits of the strong growth of the emerging market (EM) corporate bond universe in the past decade has been the diversification of issuers. The asset class, which at $1.6 trillion is now larger than the US high-yield market, offers a vast number of countries and industries to invest in. Contrary to the EM rhetoric that has been making headlines i…Read the article