TwentyFour

TwentyFour partner and portfolio manager Gordon Shannon looks at the developments we saw in investment grade credit in the first quarter of 2021 and provides his outlook for the rest of the year.

This recent stability in the rates curve suggests to us that for now the market is listening to the Fed’s rhetoric and as a result the UST market feels better balanced.

With treasury yields moving aggressively higher this year, anyone reading or listening to the financial press will have become very accustomed to headlines highlighting the negative performance of “Bonds”.

There are many other aspects of SFDR to discuss and we expect the market to take some time to fully adjust.

Primary deals launched in the European high yield market over the last two weeks have been diverse, and at times opportunistic.

In terms of execution, it is difficult to assess any ‘ESG premium’ in Brass 10 given the overall strong demand, and in our view it’s still early to weigh the importance of a ‘social’ label for ABS investors.

The Fed maintained its dovish stance on Wednesday and offered very little in the way of resistance to the ongoing rise in US Treasury yields.

For most investors this deal would likely be considered a liquidity position, and at a spread of 15bp this is certainly not the sexiest proposition the European ABS market has to offer, but what is interesting about this latest instalment from the STORM platform is what makes the deal ‘Green’.

The bear steepening of the US Treasury curve has undoubtedly been the story of 2021 so far for fixed income investors, many of whom will have felt the adverse impact of the broad rates sell-off on their portfolios.

For fixed income investors, we think floating rate European ABS bonds could be an allocation consideration to help improve return prospects and reduce volatility.

In a developed country such as the US, a scenario of rising inflation expectations is usually accompanied by a bear steepening across maturities of the underlying yield curve.

Our year-end forecast of 1.50% for the 10-year is already looking very out of date, and it would be a brave person right now to suggest that 2% won’t be touched any time this year as the recovery gets into full flow with the Fed holding its tongue.