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…Read the article
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…Read the article
The ongoing financial meltdown in Turkey, increasing risks of more US sanctions on Russia and a repricing of China High Yield (HY) bonds – on the back of higher defaults and increased trade war tensions -, have all resulted in a significant widening of Emerging Market (EM) HY corporate credit spreads. Investors are now getting paid 525 basis points (bps) over US Treasuries for investing in EM “…Read the article
Prices of most global corporate bonds rose over the past five trading days, as above-expectations US economic data fuelled the dollar, took US equities to new heights, and the International Monetary Fund (IMF) confirmed its US growth prospects while cutting those for the Eurozone, Britain and Japan. The risk-on optimism left behind Emerging Markets (EM) sovereign debt, hit by the protracted US-…Read the article
It is fair to say that markets have become more lively of late. One sector in particular has been the epicentre of revived market volatility – Technology.
In the US high yield market, the US tech sector has weakened relative to the broader US high yield market. Given higher leveraged balance sheets, high yield bonds tend to be more sensitive to sector specific headwinds.
The chart below shows t…Read the article
Some of the worst performing bonds in the European high yield index in 2017 all had weak Environmental, Social, and Governance (ESG) scores according to MSCI. Is this is a coincidence or is it indicative of a relationship between poor ESG metrics and bond performance?
To find out the answer, we analysed the 2017 total returns of the 365 bonds in the European high yield market that were ESG rat…Read the article
Good performance after an exceptional 2016
2017 was another good year for high yield investors with the global high yield index delivering a total return of 8.0% (in USD terms), albeit this was less exciting than the 16% achieved in 2016. The US continued to outperform Europe but at a far more modest rate compared to 2016, with a 7.5% local currency total return vs Europe’s 6.7%, although much …Read the article
Short term US dollar interest rates continue their march higher. 3-Month USD LIBOR recently hit 1.61%, fuelled by the Fed’s 25 basis point hike on December 13th, a level last seen in late 2008. With further rate hikes on the horizon in the US and a potentially more hawkish European Central Bank, is 2018 the year when floating rate high yield meaningfully outperforms its fixed rate cousin?
The s…Read the article
When investing in companies of a lower credit quality, loss given default risk is the key threat that investors have to assess. Consequently, covenant protection is a crucial consideration before lending capital to a company. We wrote about covenant protection back in 2014 and it’s fair to say that covenant quality in the high yield market hasn’t improved much since then; actually quite the opp…Read the article
Would you buy a 7-year unsecured bond at 6% yield from a B1/B+ rated Brazilian airline (first time issuer) with well-below-standard credit covenant protection for investors? Many did last week. Few would have a year ago.
This year, many emerging market bond investors have been tempted to lend further down the credit spectrum in search for higher yields. Strong inflows into the asset class combi…Read the article