TwentyFour Advent Calendar 2021

Ten-year US Treasury yields reach 1.15% on January 12, up 19bp from January 5, when the Democrats won Georgia’s two Senate seats and raised market expectations of a mammoth stimulus package from the Biden administration. Volatility in long end rates would become an uncomfortable trend for fixed income investors across 2021.

Eurozone governments print a record €48.8bn of syndicated bonds in January, with record order books ensuring there are eight euros of demand chasing each euro of issuance, according to Refinitiv data. A €3.5bn 10-year deal from BB/BB- rated Greece is among the highlights, drawing bids of €29bn.

The US Treasury raises a record $126bn in its quarterly ‘refunding’ bond auction in February, as it continues to finance elevated government spending in the wake of the COVID-19 pandemic. However, this is only a small rise on November’s $122bn auction, a reprieve for Treasury markets after months of unprecedented supply increases across 2020.

UK Asset Resolution sells two RMBS deals totalling £5bn to a consortium of investors in February, completing its divestment of the Bradford & Bingley and Northern Rock mortgage books it acquired in 2010. The sale brings the curtain down on the two failed lenders’ crisis-era Granite and Aire Valley securitisation programmes, with all bondholders repaid in full.

Investment banking revenues at JP Morgan rise 222% year-on-year as it posts a first quarter profit of $14.3bn, in addition to releasing $5.2bn in provisions taken during the pandemic to deal with loan losses that never materialise. JP Morgan, Goldman Sachs and Morgan Stanley all go on to report record 12-month earnings at the end of Q2, as banks reap the benefits of the post-COVID boom in mergers and acquisitions.

The yield on 10-year US Treasuries surges from 0.93% to 1.74% over the course of Q1, a total return of -5.5%, as bond investors begin to confront a strong economic recovery in the US and building inflationary pressures.

US non-farm payrolls register a huge miss against expectations in April, with the economy adding just 266k jobs versus an anticipated 1m. The miss highlights an acute labour supply problem in the US as businesses attempt to return to pre-COVID capacity, with some fast food restaurants offering cash incentives just to attend interviews.

Used car prices in the US skyrocket in the second quarter as auto manufacturers are hit by a global shortage of microchips, driven by huge demand for consumer electronics during COVID lockdowns. Used car prices jump 10% month-on-month in April, 7.3% in May and 10.5% in June.

ESG bond fund sales total $54bn in the first five months of 2021 compared with $68bn for the whole of 2020, according to Morningstar, demonstrating asset owners’ increasing desire to see their capital invested responsibly. Demand remains concentrated in Europe, with ESG bond fund sales totalling just $4.75bn in the US over the same period.

The balance sheet of the US Federal Reserve tops $8tr for the first time in June, roughly double its level in March 2020 before large scale asset purchases began. The milestone comes shortly after the Fed announces it will begin selling the $14bn of corporate bond holdings it purchased in an unprecedented move at the peak of the COVID-19 crisis in 2020.

The yield on the Bloomberg Barclays US Corporate High Yield Index falls to a record low of 3.84% in June, as the economic recovery, accommodative central bank policy and ultra-low default rates fuel demand for lower rated corporates. Healthcare firm Centene sells a $1.8m seven-year deal at 2.45%, a record low for a high yield issuer in that maturity.

The European Union receives €142bn of orders for a €20bn 10-year bond – the largest ever institutional bond sale in Europe – under its NextGenerationEU programme, which is set to raise over €800bn from the capital markets by 2026 to support the bloc’s recovery from COVID-19. The level of demand (for bonds paying just 0.1%) raises the prospect that jointly-issued EU bonds could ultimately replace German Bunds as the European ‘safe asset’ of choice.

European CLO supply reaches €53bn in the first six months of 2021, split between €15bn of new issues and €38bn of refinancings, as managers take advantage of lower funding costs and a ready supply of leveraged loans. US CLO supply is also off the charts in H1, with quarterly supply of $39.8bn in Q1 setting an all-time record that is swiftly broken by $43.4bn for Q2.

Global green, social and sustainable (GSS) bond issuance totals $228bn in the first half of 2021, a 59% increase on the same period in 2020, according to the Climate Bonds Initiative. Issuance is boosted by some $147bn of social bonds, four times the amount issued in H1 2020.

The S&P 500 notches up its 50th record high of the year by the end of August, with a year-to-date gain of 20%. The widely referenced Bloomberg Barclays Global Aggregate investment grade bond index is -2.33% over the same period, driven by weakness in US Treasuries.

European junk bond real yields go negative for the first time ever in September, as central bank asset purchases continue to drive investors into lower rated bonds in search of income. The yield on the ICE BofA European High Yield index drops to 2.34% on September 7, well below Eurozone inflation, which rises to a decade high of 3% in August.

At the COP26 summit in Glasgow, former Bank of England governor Mark Carney claims $130tr of capital has been committed to net zero by banks, fund managers and insurers as part of the Glasgow Financial Alliance for Net Zero. The FT calls the figure “too big to be credible.”

The UK sells it’s inaugural ‘Green Gilt’, which at £10bn makes the 12-year bond the largest sovereign green issuance on record. The 0.87% yield is 0.025 percentage points lower than it would have been for a normal Gilt, says a banker involved in the deal, a “greenium” saving the UK Treasury around £28m in interest over the life of the bond.

The 12-month US high yield bond default rate drops to just 0.44% (0.23% excluding energy firms) in October, the lowest since December 2007, as bond investors continue to enjoy some of the strongest credit fundamentals ever witnessed.

US consumer price inflation (CPI) hits a 30-year high of 6.2% in October as data continues to challenge central banks’ long-held view that post-COVID inflationary pressures would be ‘transitory' in nature. In the same month UK CPI accelerates to 4.2% and Eurozone CPI to 4.1%.

The Fed finally pulls the trigger on tapering, as Jerome Powell announces its $120bn-a-month bond-buying programme will be reduced by $15bn per month from November, a pace that would see stimulus withdrawn entirely by mid-2022. US Treasury yields barely register the move, a result of the Fed preparing investors for tapering well in advance and Powell’s insistence that interest rate rises are still months away.

Three hours before the Bank of England’s monetary policy decision on November 4, the markets put the probability of a 15bp rate hike at just over 50%. Policy is left unchanged, and BoE governor Andrew Bailey comes under fire for talking up the chances of a hike in advance of the meeting. Twelve days later, Bailey says he is “very uneasy” about inflation in the UK.

The Turkish lira hits another record low in December as, despite soaring inflation, the country’s central bank cuts interest rates for a fourth straight month. As of December 20 the lira is the worst performing currency of 2021, down 55% against the US dollar.

Assets under management at TwentyFour reach $30.4bn as of December 16, a rise of 11% year-to-date, with Q3 2021 its 38th consecutive quarter of net inflows. The firm’s flagship Vontobel Fund - TwentyFour Strategic Income Fund reaches $7.8bn, a YTD increase of 43%.