Global High Yield Bonds

Having started the year with low yields and tight spreads, fixed income markets had the most brutal month I can recall in March and have been repriced in the most aggressive manner imaginable. The dust does appear to have settled and a more balanced market without ‘fire sale’ pressure has returned, so we thought it was worth recapping where we are today and sharing some thoughts for the journey ahead.

Some of the panic selling has also abated as investors are gradually building their cash piles to desirable levels. However, we are still a long way away from normal bond markets.

Yesterday we blogged on how European HY had always led recoveries in UK equities this century, and that even more so this time around we expect the same to happen.

In the last two weeks we have seen savage falls in risk assets, but with the unprecedented stimulus and support action taken by policymakers globally, many investors’ minds have inevitably turned to when risk assets might be a buy again. More specifically, given equities are higher beta assets in multi-asset portfolios, when should asset allocators be buying equities again?

The authorities are now rapidly promising huge aid packages, but how do these aid packages find their way to the people that need aid? This is what is missing

While there has been a rally in risk-off assets since January over coronavirus fears, credit markets have been largely resilient given strong technical demand, driven by huge inflows for bond funds and the wall of cash sitting on the sidelines.

This deal may well perform in the short-term, and we sincerely hope Alpha’s plan works, but we also recognise there is a high degree of execution risk and the domestic economy still has considerable headwinds.

CEO and Portfolio Manager Mark Holman discusses Q4 performance for the Strategic Income strategy and provides his outlook for 2020.

We have talked regularly about avoiding ‘next year’s skeletons’, and this is now more pertinent given the strength of the current technical backdrop, combined with spread levels that are significantly tighter relative to this time last year.

Fixed income investors are well versed in the risks of ‘fallen angels’, investment grade companies whose bonds tumble in value once they are downgraded to high yield.

September new issuance has opened with a bang as we expected. Volumes are high and the issuer types are diverse, with a slant towards more frequent borrowers who tend to have their ducks permanently lined up in order to jump on favourable conditions. We expect this trend to continue throughout September as bankers push borrowers to take advantage of what could be one of the best opportunities they might see this cycle.

The average yield of the bond market today is 1.46%, while its average duration is 7.05 years, going by the widely used proxy of the Barclays Multiverse Index.