Multi-Sector Bonds

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.

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.

The UK’s political situation, and in particular the harder Brexit stance of the frontrunner for next prime minister, Boris Johnson, has provided the market with a steady stream of headlines over the past few weeks. As a direct consequence sterling is close to 6% off recent highs and domestic credit spreads have also underperformed their European and US peers.

“This time next year, Rodney…”