Author profile

Stefan Isaacs

Years in the bond markets: 19

Specialist subjects: European credit and high yield corporate bonds

Likes: Football, music, summer, classic cars & travelling

Heroes: Scotland's finest export - Bill Shankly

Sell off in high yield markets provides a buying opportunity

The price action in the high yield market has been brutal over the last few weeks. A very respectable year-to-date return of 3.8% as at end of June currently stands at -1.3% (according to the Merrill Lynch European Currency HY Index as at 15/08/11). That’s a significant re-pricing of risk. To put it in context, look at the iTraxx Europe Xover Index (for an explanation, see here). The most liqui…

Read the article

Portugal downgraded to junk – Portuguese corporates ejected from the credit indices

As a direct consequence of Moody’s downgrade of Portugal to sub investment grade, now Ba2 to be precise, Portuguese corporate bonds will be removed at month end from Bank of America Merrill Lynch’s (BofAML) main investment grade and high yield indices. This is because the main BofAML indices require the sovereign to have an investment grade rating. (It also looks as if Portuguese corporates wil…

Read the article

High Yield On Course for Record Issuance in 2011. Are lenders already repeating the mistakes of 2006/7 ?

It has been almost three years since the collapse of Lehman Brothers back in September 2008. The High Yield market has staged the sort of recovery few imagined possible, with each recent month bearing further witness to increased risk taking, evidenced by falling risk premia, record issuance and ever looser lending standards. With dividend transactions (Ardagh Glass), portable cap structures (H…

Read the article

The ECB’s mandate says raise rates, but is the ECB’s mandate correct?

The European Central Bank firmly laid its cards on the table at last Thursday’s press conference. Trichet et al are in no mood to risk potential second-round effects of rising wages. According to JP Morgan the phrase ‘strong vigilance,’ uttered by Trichet during his prepared remarks, was used one month prior to all policy moves during the last tightening cycle. Not surprising then that Bunds so…

Read the article

The relationship between financial and non-financial credit – decoupling?

A renewed focus on European bank balance sheets, their sovereign exposures, fears of creditor bail ins and a general risk apathy saw subordinated financials spreads move significantly wider through November. I’ve charted the ratio of spreads, comparing the Merrill Lynch EMU Financial Corporate Index, Sub Type (EBSU) against the EMU Corporates, Industrial, BBB rated (EJ40) below. Whilst sub fina…

Read the article


Over the weekend Ardagh Glass announced a transformative acquisition of another well known packaging name in Impress Cooperative U.A. The deal left me with mixed emotions and came as something of a surprise because an IPO had been considered the most likely exit for sponsor Doughty Hanson.

The purchase of Impress sees the departure of a European high yield market stalwart. The company’s inaugur…

Read the article

Beautiful Game, Ugly Investment

Travelling back from Sunday’s draw between Liverpool & Arsenal (it was never a sending off), I noted Liverpool Football Club had again made the business pages for all of the wrong reasons (see here).

The current battle between RBS, the principal creditor to LFC, and its owners Tom Hicks and George Gillett continues to highlight the dangers of utilising leverage to buyout companies in certain in…

Read the article

The European Central Bank withdraws the 12 month LTRO, just as banking system strains re-emerge

A report in the FT today highlights the lobbying of the ECB by Spanish banks to renew a one year funding facility known as the Long-Term Refinancing Operation (LTRO) that comes to an end this week.  Banks borrowed €442bn from the ECB under the facility last year, at a time when borrowing in the market was either impossible or too expensive. When the facility closes, the banks that still need EC…

Read the article

Germany implements restrictions on financial markets. Is this a policy error?

At this stage the details are very limited but it appears that the German supervisory body BaFin has banned the “naked” short selling of Eurozone sovereign bonds, their credit default swaps, and the shares of ten leading German financial institutions. The ban was effective as of midnight last night.

This move by the German authorities has had the effect of spooking already fragile markets. As w…

Read the article

European sovereign debt fears – limited impact on European corporate bond markets

Strong earnings results, low inflation expectations and a view that the ECB will have to keep interest rates lower for longer to support the economic recovery has seen demand for European corporate bonds remain fairly robust.

That is not to say that European corporate bond markets have been unaffected. Those credits that have been most impacted by the sovereign debt worries have unsurprisingly …

Read the article