Over my 25 years in bond markets, there’s always been one trade that becomes known as “The Widow-Maker”. Being underweight long-dated gilts was one, at a time when new pension regulations sent yields plummeting, and shorting the Japanese bond market also became deadly as the Bank of Japan slashed rates to zero. Today, widows and widowers are being made in the German bund market. Yields on the …Read the article
First of all, our thoughts are with those impacted by Hurricane Irma and other recent weather-related disasters.
Beyond the human tragedy and economic costs, these are typically low-probability, but potentially high-impact, events that can ultimately impact an issuer’s ability to service its debt obligations. As bond investors, we aim to assess the various risk factors related to the companies …Read the article
The United States is fast approaching the point at which its indebtedness reaches its debt limit, which generally is approved by Congress without debate. Routinely in the past the debt ceiling would be raised, reflecting that it does not affect the amount of spending, but only makes sure the U.S. can pay for spending it is committed to whether by tax receipts or by borrowing. It is about ensuri…Read the article
When investors buy or sell financial assets they try to analyse likely outcomes. This basically revolves around three main issues.
- What is the capital upside?
- What is the capital downside?
- What income is earned from the security?
The dramatic fall in bond yields means that this traditional approach to investing will have to be examined.
One way to do this is to model real world outcomes. …Read the article
Guest contributor – Craig Moran (Fund Manager, M&G Multi-Asset Team)
These are extraordinary times in financial markets. On a daily basis we are being bombarded with news headlines of political turmoil, market gyrations, forecasts…Read the article
Looking back over the past year it’s evident that decent returns were much more difficult to achieve than in 2014. Within my sample of 85 different Bank of America Merrill Lynch bond indices (and as you can see from the smaller sample in the chart below) most indices fell within the -5% to 5% total return range for 2015, whereas most fell within the 5% to 15% range in 2014.
In 2014 though, mos…Read the article
Guest contributor – Jean-Paul Jaegers CFA (Senior Investment Strategist, Prudential Portfolio Management Group)
One asset class where seasonality matters hugely is inflation linked fixed income. This makes a lot of sense, as inflation is the underlying macro variable, and inflation by its nature is very seasonal. For example, post Halloween sales or Holiday packages tend to happen in regular pe…Read the article
Following another sell off, the US high yield market has once again touched the psychologically important 8% yield level today. This is an important valuation signal that has helped to tempt investors back into the market in recent months. However, the last move up in yields has been driven in part by a renewed downdraft in commodity prices, not least with WTI pricing in the low $40’s. Energy i…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’ve seen a swift and rapid re-pricing of the bund curve in recent weeks, highlighting again the risk to capital that bond investors face when yields start to rise. All major bond markets in Europe have been impacted to some degree. Nevertheless one corner of the bond market has remained very resilient: floating rate notes.
We have highlighted before how these instruments have some potentially…Read the article