Fixed Income

It was a dramatic night last night as the Fed cut interest rates by 25bps, the first cut since December 2008, along with the premature ending to the balance sheet run off – however markets hardly moved!

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 euro area bank lending survey for the second quarter of 2019, released yesterday, suggests European banks are becoming more cautious and beginning to tighten lending criteria to various parts of the economy.

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.

Eoin Walsh discusses Q2 performance for the Strategic Income strategy and looks forward to the rest of the year.

Chris Bowie looks at the performance of the Outcome Driven strategy over the last quarter and provides his outlook for the rest of 2019

Ben Hayward looks at the Q2 performance for Asset Backed Securities and provides an outlook for the year ahead.

One of the market’s chief obsessions in 2019 has understandably been the shifting stance of the US Federal Reserve in relation to the path for interest rates, with investors now pricing in a 100% chance of a rate cut at the end of this month. Now that the June FOMC minutes, Nonfarm payrolls, Jerome Powell’s testimony to Congress, the June CPI and PPI numbers and the Trump-Xi meeting at the G20 in Osaka are behind us, what is the next set of data that may shed some light on the Fed’s next policy move?

Yesterday we heard from US Federal Reserve Chairman, Jerome Powell, as he testified at the House Committee on Financial Services. Obviously the main focus for markets was to glean any additional information regarding the future timing and path of the Fed Funds rate. However, as important for fixed income investors as the future path for rates is, listening carefully to central bankers can also provide insight into the bigger picture economic environment. My ears pricked up in particular at two important and related topics Mr Powell discussed.

European bond markets can breathe a sigh of relief this morning as Christine Lagarde is poised to be the new president of the European Central Bank, succeeding Mario Draghi in October.

As we approach the end of Q2, a time when the price of currency hedging can typically spike, we have been reviewing the likely changes in the so-called ‘costs’ of currency hedging. I use the term so-called as these are not really costs, merely a differential in short term interest rates, which for some investors can be a gain and for others it will be a reduction in the yield or return of an asset.

This week Jerome Powell and his fellow FOMC members sit down to determine the Fed Funds rate, and despite the expectation of no move, this meeting is going to be very closely monitored with market participants analysing every word of the subsequent comment.