Global High Yield Bonds

Today marked the arrival of a long expected event, namely the inversion of the US yield curve between two and 10 years. This is an important event as historically it has been a very reliable indicator of impending recession. History tells us that once the 2s-10s curve inverts, on average a recession is a year to 18 months away.

The current US economic expansion is now the longest in modern history, and investors globally will be seriously contemplating the end of the credit cycle. This late-cycle period could prove particularly challenging. Mark Holman, chief executive of TwentyFour Asset Management presents five tactics for fixed income investing late in the credit cycle.

Over the past few weeks there has been a noticeable increase in high yield new issuance, bringing a welcome flurry of activity to what has so far been a relatively benign year.

“This time next year, Rodney…”

It is that time of year when we traditionally look ahead to the new year and make predictions on the performance of various asset classes, sectors and industries.

On Monday my colleagues on TwentyFour’s Multi-Sector Bond desk published a blog on rising default risks in high yield credit. Dummen Orange, Douglas, Boparan, Moby, Galapagos and CMC Ravenna are some of the obvious under-pressure names held in loan funds and CLO portfolios that are trading at a significant discount in the market.

A quick look at the dashboard of 16 fixed income indices I track clearly shows the amount of pain experienced by investors so far this year. Of the 16 indices I follow, which include IG corporates, government bonds and high yield all denominated in sterling, euros and dollars, Bank CoCos, £ and € Sub Insurance, three hard currency corporate EM indices and the G7 govvie index, only two had a positive total return for the year at the end of October.

Fixed income managers never like to start their week reading headlines about potential defaults in the high yield sector, but sadly this has been one of those Mondays.

Typically in August, credit liquidity becomes a bit like my lawn this summer: patchy. Over the past few weeks there have been a few stories of large fund groups seeing significant outflows from the asset class, and even of liquidations, which begs the question: what are they selling?

We have had a lot of discussion, both internally and externally, over the last few days around when might be the time to begin adding more risk to portfolios again.

This significant flattening came about as the Fed signalled its determination to push through policy normalisation, with four hikes now expected for the calendar year 2018, which would take the upper bound of the Fed Funds rate to 2.5% by year-end.

Credit metrics, as measured by the rating agencies, continued to improve throughout the first half of this year, with all corners of the globe having comfortably more upgrades than downgrades.