All insights

With all of the recent data pointing to higher inflation expectations and the Fed expected to maintain a transitory interpretation, we will be focusing our attention on comments from the various regional Fed presidents on conditions that could prompt a tapering move at some point in the future.

We believe UK government bonds are ultimately most vulnerable to a rise in inflation, and the 10-year Gilt currently trading at 0.73% does not come close to compensating for this.

The remarkable pace of change in the markets as the global economy reopens points to opportunities in higher yielding bonds, with financials in particular set to benefit, says TwentyFour Asset Management CEO and portfolio manager Mark Holman.

Frustratingly for fixed income investors looking to buy bonds, the data seem to fully justify the high valuations we see in so many parts of our market at the moment; it really would not make sense to be able to buy bonds cheaply when conditions are so good.

While we don’t expect any material spread widening in the near term, we remain extremely wary of higher duration bonds given our view that the potential persistent inflation suggested by recent data isn’t priced into US Treasury yields, which currently sit around 1.58% at the 10-year point.

2021 looks set to become a post-financial crisis record year for European CLO issuance and refinancings, but amid the rush of activity we are seeing a concerning trend for weaker documentation in refinanced deals that in our view investors need to fight against.

After unleashing the strongest combined emergency package we have ever seen in 2020, central banks are now entering perhaps the most challenging phase of their COVID-19 response, trying to balance the economic recovery while at the same time having to reassure the markets they can control the threat of runaway inflation.

Last week there was a rare occurrence in the high yield market as German airline Lufthansa announced it would be deferring the coupon on a hybrid bond issued in 2015.

From our perspective, the potential wage pressures we see make us uncomfortable with 10-year Treasury yields at current levels, despite their significant rise since the start of the year.

Having witnessed the most remarkable turnaround in risk markets over the last 14 months, it makes sense to take stock as fundamentals look to us to be approaching optimal levels. Credit spreads have ground into levels not far from the prior cycle’s tights, and while we remain confident in the underlying fundamentals and a good technical backdrop, recent developments mean that despite this constructive view, our risk appetite has ticked down slightly.
 

The inexorable growth of sustainable investing during the last decade is likely to continue without interruption given the experience of COVID-19 has only intensified investor and regulatory focus on environmental, social and governance (ESG) issues globally.

TwentyFour Asset Management launched its first sustainable fund in January 2020 and I would like to share some of the lessons we have learned from our first year of sustainable bond investing.