Asset Backed Securities

With inflation soaring and the economic recovery looking more fragile, we look at three famous central bank policy errors to demonstrate why they can be so dangerous for investors, and consider how a fixed income portfolio can be strengthened against the risk.

The first month of 2022 has passed, and it’s been quite a roller coaster for broader equity and credit markets, with volatility climbing to its highest level since January 2021.

After a relatively quiet period during the closing weeks last year, the primary ABS market has enjoyed a solid start to 2022.

TwentyFour Partner and Portfolio Manager, Douglas Charleston, explains how ABS markets have performed in Q4 2021 and provides his outlook for the new year.

If 2021 was a bad year for global bond returns, it follows there were few natural shelters to be found within fixed income from the brunt of inflation and rates-driven volatility; the Barclays Global Aggregate Index (a widely used broad measure of bond performance) returned -4.7% in USD terms, while European investment grade credit returned -1.1% despite credit spreads tightening over the course of the year.

With inflation and rate hikes dominating market discourse, we expect floating rate assets such as ABS and CLOs to benefit from increasing demand in 2022.

The first two trading weeks of the year are coming to an end and unlike previous years they have been packed with activity.

As we enter the New Year, we say goodbye to an old “friend” that has accompanied us (for better and for worse) since the inception of the UK ABS market in the late 1980s – Sterling LIBOR.

Markets have clearly experienced some periods of volatility this year, and while European CLOs haven’t been immune to this, both fundamentals and prices have been remarkably stable.

Shortly after publishing his annual Rodney Blog, TwentyFour CEO Mark Holman sat down with Tom Porter to discuss the biggest calls fixed income investors will have to make in 2022, and explain why he believes the current disconnect between monetary policy, the economy and the markets cannot last for long.

With floating rate assets likely to be high on investors’ shopping lists for 2022, Doug Charleston looks at the floating rate options across fixed income and highlights the highest yielding opportunities.

What we are currently experiencing is a disconnect between monetary policy, the economy and the markets, a disconnect that in our view will struggle to survive much longer.