Category Archives:

Corporate bonds

Why corporate QE is now conventional monetary policy

One common theme in market commentary of late has been the unprecedented use of the word unprecedented! One thing that used to be unprecedented and is now commonplace is central banks buying corporate bonds. Now this seems to have become conventional monetary policy, it is worth asking “why?” and “is this appropriate?”.

We first wrote about corporate bond purchases in 2009. Bac…

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High yield case study: McLaren – a car crash averted

Covid-19 has taken lives, dramatically reshaped the way we live and work, and challenged our view of a safe and stable world. Those of us who work in investment management, especially high yield fund managers like myself, have seen the pandemic put many businesses under severe financial stress. British high-end sports car maker McLaren was one of them. The company’s activities have been badly …

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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 …

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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…

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The ECB resumes corporate bond purchases — here is what you have to know

All eyes are on central banks these days as major monetary policy decisions have been driving global bond markets. The eagerly awaited September meeting of the Governing Council of the European Central Bank (ECB) has given bond investors much food for thought. In particular, the new round of its asset purchase programme (APP)—announced in true ECB fashion revealing only the bare minimum of de…

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What if the ECB starts buying corporate bonds again?

In his distinctively dovish Sintra speech two weeks ago Mario Draghi left the door wide open for further loosening of monetary policy in the Euro area. All options seem to be on the table to bolster European inflation numbers, including a new round of quantitative easing. Draghi’s remark about the ECB’s Asset Purchase Programme (APP) still having considerable headroom fuelled hopes amongst man…

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Eskom, Pemex: two distinct stories but a similar root of problem

Fully government-owned corporate bond issuers (or quasi sovereigns) are one of the most interesting areas of emerging market debt investing, due to the hybrid nature of their credit risk: partly corporate credit, partly sovereign risk. Venezuela’s national oil company PDVSA is an example of what can go wrong, as it is in default. Bond investors are therefore currently spending more time looking…

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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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Panoramic Weekly: Bonds take a bath

The bond sell-off that started last week with the publication of strong US data continued over the past five trading days, even if Friday’s job report came in below expectations and a slew of global data and events only confirmed a worsening momentum: the International Monetary Fund (IMF) cut this year’s world economic growth forecast to 3.7%, down from 3.9%, citing challenges to trade; Italian…

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Panoramic Weekly: Stars and Strikes

Global bond markets reacted sharply to Wednesday’s release of US Services data, which struck its best mark in 21 years: US 10-year yields spiked to 3.2%, the highest since 2011, while the dollar reversed a gloomy September to recover its August level. The usually less reactive 30-year Treasury yields surged, leading some investors such as M&G fund manager Richard Woolnough to argue that the mar…

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