I’ve spent a bit of time in recent days looking at the performance of global investment grade (IG) credit. The chart below shows the year-to-date (YTD) ranges of asset swap (ASW) spreads for USD BBB 5-10 year corporate bond sectors.
Here are our three key takeaways:
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- First, on the bright side, the spread of the USD BBB index as a whole has tightened by 18 bps YTD. Despite being modest in magni…
Government bond yields are extremely low across the globe. The highly unusual phenomenon of negative bond yields – even on debt issued by countries that still face a debt crisis – is now commonplace. In addition, investors are looking to protect themselves from the carnage in bond markets we have seen in recent weeks (for example, the “risk-free” German 2.5% 2046 bond is down -19% since the hi… Read the article
An overriding theme for U.S. high yield energy companies in the current oil price environment is having sufficient financial liquidity (cash, bank credit, etc.) to cover their obligations as earnings come under pressure due to low oil prices. Maintaining liquidity until oil prices recover will be paramount for energy companies to survive, even for those names that aren’t especially levered. It … Read the article
Credit curves are usually upwards sloping; as you’d expect, investors require more of a credit risk term premium for lending for a long time than for a short time, all else being equal. As the charts below show however, the steepness of USD IG non-financial credit curves has become rather extreme in 2014. At year end, the asset swap (ASW) spread differential between c. 25 years and c. 2 years w… Read the article
As we started 2014 the US Treasury market was expecting 10 year yields to be at 4.13% in a decade’s time. This 10 year 10 year forward yield, derived from the yield curve, is a good measure of where the bond market believes yields get to if you “look through the cycle”, and disregard short term economic trends and noise. I wrote about it here and suggested that we were approaching the top of th… Read the article
2014 was quite an eventful year for Emerging market (EM) fixed income. After a period of strong performance which lasted all the way to September, markets corrected significantly in the latter part of the year as the escalation of the Russia crisis and the plunging oil prices triggered the most significant drawdown since the “taper tantrum” of June 2013. All in all, emerging markets still poste… Read the article
It’s this time of the year when banks and other investment research providers have released their outlooks for the coming year. For the EM corporate bond asset class, Asia was forecast to be the best performer in 2015, with most top picks being in India and China.
Most 2015 outlooks were released in late November or early December, when EM USD corporate bonds were boasting a solid 6.1% total re… Read the article
One of the many unintended consequences of structurally low interest rates over the past few years has been the emergence of mini-bonds in the UK. These are typically non-tradable debt instruments issued by companies directly to individual investors*. We’ve commented before on one such bond issued by Chilango, a London based vendor of Mexican food, and highlighted some of the risks relative to … Read the article
As you know, we’ve always been fascinated by the UK’s War Loans and have written about them repeatedly on this blog (here’s what we wrote in 2011 when we suggested that they should be redeemed). Bonds and war go together hand in hand, and for most of history rising government debt levels have been directly caused by the cost of financing conflicts, or the reparations afterwards. The several out… Read the article
The decoupling of European and U.S. yields has been one of the key bond market themes in 2014 and therefore a much-discussed topic in our blog and elsewhere. Over the past two and a half months, however, a second type of transatlantic decoupling has emerged, this time with regards to credit spreads.
Let’s first have a look at the relative year-to-date (YTD) performance of USD and EUR investment… Read the article