All insights

ESG investing was tipped to be the biggest theme of 2020 for financial markets, but was swiftly superseded by the COVID-19 pandemic, which has dominated investors’ thoughts since Q1. We thought it was important to revisit this topic and explore if and how the pandemic has changed the world of ESG.

We have now retraced some 90% of the March widening in European high yield (on a spread basis and relative to the January tights), a recovery trend we expect to continue as economies open up and demand bounces back. 

To mark the fifth anniversary of his firm’s Strategic Income global bond strategy, TwentyFour Asset Management chief executive, Mark Holman, looks at how the COVID-19 crisis has transformed the bond markets in 2020, and where he believes investors should be looking for value heading into 2021.

Speed of market movement will be a feature of this recovery as the market realises many of the same trends are firmly in place, and with the incredible technical backdrop this means lower yields as the cycle progresses.

2020 has not been an ideal year for those investors with a nervous disposition, as we have endured an unprecedented level of uncertainty soothed by an equally unprecedented level of monetary and fiscal stimulus

So while we certainly expect unemployment to increase across Europe, and we expect more borrowers will fail to pay their mortgages, we believe current mortgage performance is very far away from a level that would threaten coupon and principal payments in the major European RMBS markets.

The gradual backup in yields since the onset of the pandemic has given Treasuries a little more potency to protect bond portfolios, though we don’t see the rise being anywhere near big enough for them to behave like they used to.

Regular readers will know that we have a positive medium term view of spread products. This is based on a number of factors; valuations in our view are reasonably attractive compared to history, we are convinced that both monetary and fiscal stimulus will remain in place for an extended period of time, and perhaps most importantly we remain at a very early stage of the new cycle.

Thursday’s ECB meeting left us in little doubt that we should expect some serious action in December, including the possibility of some new, as yet unused measures.

Having fallen behind other markets in the post-COVID rally due to a lack of direct central bank support, we believe European ABS is set to outperform other parts of fixed income in the coming months as supply wanes and investors look to pick up on what we think could be a compelling relative value opportunity.

Barclays announced its results for the third quarter of 2020 this morning, with a number of media outlets opting to focus on a 6% year-on-year reduction in top-line income.

Unlike the past six months, where nearly all new deals performed well in the secondary market, from here on in that is far from guaranteed. Expect winners and losers.