Credit is the oil that lubricates the engine of an economy. For this reason, economists watch credit statistics closely, in order to assess the sustainability of growth. If credit isn’t growing, it suggests households and firms aren’t confident enough in their respective outlooks to borrow and invest. If credit grows too quickly, it could result in financial and macroeconomic instability – hist…Read the article
One of the prevailing features of the last few years has been the increasing prominence of discussions regarding market liquidity and the seemingly downward trajectory it has taken across fixed income markets. This had led many market participants to question the resulting implications for market stability and volatility.
It makes sense then to try and understand the driving factors behind thes…Read the article
Earlier this year I gave a top-down macro assessment of Trump’s potential impact on Latin American remittances, should he become President. As the race continues, I now take a bottom-up micro view and assess Trump’s potential impact on an individual bond issue associated with the Trump Organization.
In 2007 the Panamanian real estate market was growing robustly, with prices experiencing double-…Read the article
We recently blogged about the uninspiring performance of many fixed income asset classes in 2015. Investment grade (IG) corporate bonds certainly had a tough year as credit spreads trended wider, both in the USD and the EUR market. Taking a look at option-adjusted spread (OAS) levels, USD IG credit (+29 bps) marginally outperformed against EUR IG credit (+36 bps) in 2015. In both cases periods …Read the article
It has been a while since we last uploaded a video from one of our U.S. research trips. The question we asked in March as to whether the Fed would hike interest rates this year or not has still not been conclusively answered. Although a 2015 hike is not completely off the table, as we are entering the final two months of the year it seems a lot less likely than it did back then. Nonetheless, fr…Read the article
Reverse Yankees, i.e., bonds issued by US entities in currencies other than USD, have become an integral part of the global investment grade (IG) corporate bond universe, particularly in the European IG space. For treasurers of US companies the issuance of EUR-denominated Reverse Yankees offers several advantages:
- In case a US firm reporting its results in USD has operations within the Eurozon…
We have frequently written about investment grade (IG) credit spreads over the course of the past year. Today I’m going to dissect the IG universe further and take a look at quality spreads, i.e., the additional risk premium investors can earn when switching from one credit rating band into the next lower band.
The chart below shows how the differential in asset swap (ASW) spread between AA and…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
The high yield primary market can be a battleground between issuers and investors to determine which covenants (the legal language that protects the right of bondholders) are included or excluded in the bond documentation. For investors, this can offer the opportunity to influence the structure of deals, and include valuable protections in the terms of the offering memorandum, which sets out th…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