Category Archives for "Corporate Bonds"

4th September 2019

Anticipating HY/IG yield compression

MARKET CLOSE:
iTraxx Main

49.3bp, -1bp

iTraxx X-Over

252.5bp, -4.7bp

🇩🇪 10 Yr Bund

-0.67%, +5bp

iBoxx Corp IG

B+123.6bp, -0.5bp

iBoxx Corp HY

B+421bp, -5bp

🇺🇸 10 Yr US T-Bond

1.47%, unchanged

🇬🇧 FTSE 100

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🇩🇪 DAX

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🇺🇸 S&P 500

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The ECB will be the catalyst…

Don’t let the significant rally in European rate markets blur the issue. The crucial ECB meeting is just a week away, and the expectation in the market has been that they deliver a rate cut as well as some €15bn – €30bn per month of QE. Investors have been in ‘front-running’ mode. There has been a push of late for -0.75% on the 10-year Bund (we have got to -0.743%), while we happen to believe -1.0% is the next stop.

Spanish 10-year debt yields (now at 0.16%) were just last week in single digit territory – incredibly – while Italian debt has felt a massive reprieve on news that a new coalition government has been agreed, and now offers just 0.83% (almost -100bp in a month!). But what about credit, and that compression between the high yield and investment grade markets? It’s worth another look.

In Tuesday’s note, our high yield expert commentator George Flynn went through the technical dynamics specific to the market as well as highlighting the pitfalls investors face if they fail to do the appropriate credit work on their investment choices. Nevertheless, the market has performed and we think can gain some positive spread momentum through the final quarter, especially if the ECB announces corporate bond purchases as part of any QE purchases.Continue reading

2nd September 2019

That’ll do nicely

MARKET CLOSE:
iTraxx Main

48.8bp, unchanged

iTraxx X-Over

250bp, -3bp

🇩🇪 10 Yr Bund

-0.69%, +1.5bp

iBoxx Corp IG

B+122.3bp, +1.5bp

iBoxx Corp HY

B+424.5bp, unchanged

🇺🇸 10 Yr US T-Bond

1.50%, unchanged

🇬🇧 FTSE 100

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🇩🇪 DAX

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🇺🇸 S&P 500

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Fixed income performance continues to shine…

Equities have, at times, buckled under the strain of the US/China trade headlines. Corporate credit seems to be losing its head in a fog of negative yields just as primary debt offerings print with zero coupons. Price now matters more than yield. The rates market has become the investment for choice as investors front-run the central banks pushing prices higher, and yields have felt the strain of the demand. Who would have thought that we’re talking in terms of option-like returns for Eurozone government bond market investors so far this year?

Normally an unexciting market, lumbering and low or no returns (easily less than 1% typically in any given year) but Eurozone government bonds have rallied hard and put 10.5% or more of performance in the bag for investors for the year to date. They added 2.7% in August alone. Clearly, fixed income came out tops in August, with all markets returns higher while equities sagged in comparison – for a change.

Continue reading

1st September 2019

Stick or twist?

MARKET CLOSE:
iTraxx Main

48.8bp, +0.7bp

iTraxx X-Over

253bp, +0.7bp

🇩🇪 10 Yr Bund

-0.71%

iBoxx Corp IG

B+120.8bp, +0.7bp

iBoxx Corp HY

B+425bp, -1bp

🇺🇸 10 Yr US T-Bond

1.50%

🇬🇧 FTSE 100

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🇩🇪 DAX

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🇺🇸 S&P 500

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Politics and trade war whip up the perfect storm…

Much of it doesn’t make sense, but on we go – and into uncharted territory, so anything is possible. Politics and trade dominate the landscape, leaving macro on the precipice. Brexit, Italian politics, Hong Kong, US/China, Kashmir and Argentina’s default are all deserved of investors’ attention. The resulting and predictable equity volatility – particularly derived from the worsening US/China trade situation – has seen US markets fall from their record highs. The bigger story is in rates. The government bond rally has seen yields collapse in August, with curves flattening and/or inverting as markets position for the next round of central bank activity. It has seen Eurozone government bonds return 10.5% in 2019 so far!

The US Treasury curve has flattened or inverted across the various metrics, which would usually indicate that a recession is just around the corner. Further action is imminent from both the Fed and ECB as they try and avert more downside and recession. A (likely) negative GDP print in Q3 for Germany would signal a technical recession for her economy, while the 10-year Bund yield has plummeted in August – and by 28bp at one stage, to record a historic low of -0.728%.

Investors, though, are lording it from a performance perspective, especially in fixed income with returns heading for the moon. It’s great for 2019, but total return markets will resemble a dustbowl in 2020.

In the safest of haven debt markets (government bonds), where yields are embedded deep in negative territory, it has now become extremely difficult to envisage the process that sees a return to normality (positive yields). Thus negative yields – across entire sovereign curves – are something that we need to get used to. The traditional methods used to attack the malaise in macro and markets will likely fail in producing the desired results, in our view.

So as fresh blood (more liquidity) is injected courtesy of the ECB, those Bund yields – dare we say it – are heading lower. In credit, despite having backed-up in August amid high levels of equity volatility, we think that IG credit spreads will head into record territory. There is some way to go, but we can expect a ratchet tighter once the central bank announces its intentions next week.

Continue reading

7th August 2019

Baillie Gifford Fund Shines in HY GBP

Hit and miss in £ HY…

The smaller sterling high yield market has been more hit-and-miss in terms of performance but over the three months to July 2019, Baillie Gifford‘s £650m AUM has delivered, while the L&G High Income I Acc (£1.35bn) has felt some pressure. The Schroder High Yield Opportunities fund (AUM £597m) has had a bit of a shocker!

Largest HY £ Funds: Total Returns /α (%)

Performance of the largest HY Sterling corporate bond funds ordered by assets under management (AUM).

#Fund /
ISIN
Size
(£mm)
3mth/
αlpha
1yr*/
αlpha
3yr*/
αlpha
5yr*/
αlpha
Morningstar
Rating
1L&G High Income I Acc
GB00B0CNHJ41
13529.05
-3.57
2.49
-1.71
4.30
0.33
3.48
-0.41
2Threadneedle HY Bd Ins Inc GBP
GB0008371121
81316.43
3.80
6.39
2.19
4.74
0.77
4.34
0.45
3Baillie Gifford High Yield Bond B Inc
GB0030816713
70114.65
2.03
6.77
2.57
5.52
1.55
4.41
0.52
4Schroder High Yield Opportunities Acc
GB0009505693
5692.99
-9.63
-0.22
-4.42
3.37
-0.59
4.35
0.46
5ASI High Yield Bd Ins Acc £ UnH
GB0000936244
43213.73
1.10
4.65
0.45
4.19
0.22
4.04
0.16
6BNY Mellon Global High Yield Bd GBP Inc
GB0009633073
15815.72
3.10
7.17
2.97
3.96
-0.01
2.99
-0.90
7Invesco High Yield UK Inc
GB0033049254
15811.01
-1.62
2.75
-1.45
4.37
0.40
3.14
-0.75
8Scottish Widows High Income Bd Acc
GB0031643900
11811.17
-1.46
3.22
-0.98
2.68
-1.29
1.03
-2.85
9Aviva Investors High Yield Bd 3 GBP Acc
GB00B3CGJN23
09917.00
4.38
5.33
1.13
3.11
-0.85
4.13
0.24
10Marlborough High Yield Fixed Int A Inc
GB00B03TN153
07412.93
0.31
2.72
-1.48
3.75
-0.22
3.68
-0.21
11Quilter Investors Bond 3 A (GBP) Inc
GB00B05K6392
05910.93
-1.70
3.09
-1.11
2.68
-1.29
0.61
-3.28
12ASI Eurpan High Yield Bd A Acc
GB00B5968F40
05413.85
1.22
2.52
-1.68
3.18
-0.78
3.52
-0.37
13Quilter Investors Hi Yld Bd A GBP Inc
GB00B8SZLY38
05217.19
4.56
7.09
2.89
4.43
0.47
4.29
0.40
14BMO Multi-Sector Higher Income Bd 1 Inc
GB0002053006
03114.59
1.96
6.14
1.94
3.77
-0.19
3.36
-0.53
15Man GLG High Yield Opports Profl Acc C
GB00BJK3W057
0000.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
16Marlborough High Yield Fixed Intr C EUR
GG00BWX5H825
00012.64
0.01
2.01
-2.19
2.83
-1.13
0.00
0.00
17Marlborough HY Fixed Intr Guernsey Fdr
GG00BCF5NP92
11.41
-1.21
1.39
-2.81
2.66
-1.31
2.43
-1.46
18NatWest High Yield NAV
GB0033617373
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
19St James's International Corp Bd Acc
GB00B62VYF56
13.24
0.62
5.31
1.11
2.74
-1.23
2.87
-1.02

Top Performing HY £ Funds: Total Returns /α (%)

Top-performing HY Sterling corporate bond funds ranked by rolling 1-year performance.

RankFund /
ISIN
Size
(£mm)
3mth/
αlpha
1yr*/
αlpha
3yr*/
αlpha
5yr*/
αlpha
Morningstar
Rating
1BNY Mellon Global High Yield Bd GBP Inc
GB0009633073
15815.72
3.10
7.17
2.97
3.96
-0.01
2.99
-0.90
2Quilter Investors Hi Yld Bd A GBP Inc
GB00B8SZLY38
05217.19
4.56
7.09
2.89
4.43
0.47
4.29
0.40
3Baillie Gifford High Yield Bond B Inc
GB0030816713
70114.65
2.03
6.77
2.57
5.52
1.55
4.41
0.52
4Threadneedle HY Bd Ins Inc GBP
GB0008371121
81316.43
3.80
6.39
2.19
4.74
0.77
4.34
0.45
5BMO Multi-Sector Higher Income Bd 1 Inc
GB0002053006
03114.59
1.96
6.14
1.94
3.77
-0.19
3.36
-0.53
6Aviva Investors High Yield Bd 3 GBP Acc
GB00B3CGJN23
09917.00
4.38
5.33
1.13
3.11
-0.85
4.13
0.24
7St James's International Corp Bd Acc
GB00B62VYF56
00013.24
0.62
5.31
1.11
2.74
-1.23
2.87
-1.02
8ASI High Yield Bd Ins Acc £ UnH
GB0000936244
43213.73
1.10
4.65
0.45
4.19
0.22
4.04
0.16
9Scottish Widows High Income Bd Acc
GB0031643900
11811.17
-1.46
3.22
-0.98
2.68
-1.29
1.03
-2.85
10Quilter Investors Bond 3 A (GBP) Inc
GB00B05K6392
05910.93
-1.70
3.09
-1.11
2.68
-1.29
0.61
-3.28
11Invesco High Yield UK Inc
GB0033049254
15811.01
-1.62
2.75
-1.45
4.37
0.40
3.14
-0.75
12Marlborough High Yield Fixed Int A Inc
GB00B03TN153
07412.93
0.31
2.72
-1.48
3.75
-0.22
3.68
-0.21
13ASI Eurpan High Yield Bd A Acc
GB00B5968F40
05413.85
1.22
2.52
-1.68
3.18
-0.78
3.52
-0.37
14L&G High Income I Acc
GB00B0CNHJ41
13529.05
-3.57
2.49
-1.71
4.30
0.33
3.48
-0.41
15Marlborough High Yield Fixed Intr C EUR
GG00BWX5H825
00012.64
0.01
2.01
-2.19
2.83
-1.13
0.00
0.00
16Marlborough HY Fixed Intr Guernsey Fdr
GG00BCF5NP92
00011.41
-1.21
1.39
-2.81
2.66
-1.31
2.43
-1.46
17Schroder High Yield Opportunities Acc
GB0009505693
2.99
-9.63
-0.22
-4.42
3.37
-0.59
4.35
0.46
18Man GLG High Yield Opports Profl Acc C
GB00BJK3W057
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
19NatWest High Yield NAV
GB0033617373
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00

All Fund performance tables: Investment Grade EUR | Investment Grade GBP | High Yield EUR | High Yield GBP

Table information: European domiciled funds in Morningstar Category GBP High Yield Bond, Oldest share class, All figures GBP sterling (£), Total returns annualised, as at last month-end. Alpha is the measure of an investment’s return in excess of the Morningstar Category average.

Fund sizes are as reported by the management groups and the latest available to Morningstar. The Morningstar Rating is calculated based on a fund’s total returns, adjusted for risk and sales charges, relative to other funds in its Morningstar Category, based on a weighted average of a fund’s 3-, 5-, and ten-year ratings, depending on the length of its record.

Data source: © 2019 Morningstar, Inc. All rights reserved.

The information contained herein:

(1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. Important note regarding third party indices:  Morningstar does not own any third party index data (S&P, FTSE, MSCI), so cannot authorise its use. The journalists should contact each vendor directly to get authorisation for the data they require.

6th August 2019

Schroders Tops Institutional Funds Performance

€ IG Fund Performance update to End July 2019…

Schroders‘ mammoth €9.2bn euro corporate bond fund delivered 5.12% returns in the 3-months to the end of July, maintaining its position at the top of the large meaningful bond investor league table. Aegon‘s Euro Credits €2.2bn fund ran them close, returning 5.10% –  but the fund is a quarter of the size. Continue reading

6th August 2019

Small is Beautiful: GBP Funds Performance to July 2019

End of July 2019 Fund Performance update…

The IG sterling iBoxx index returned 4.5% in the 3 months to end July, but the larger sterling IG funds have failed to keep up the pace. Scottish Widows‘ £6bn corporate bond tracker fund returned just 1.39%, while the iShares £5.1bn fund came in with 1.9% of performance. Continue reading

1st August 2019

Fixed income party still in full swing

MARKET CLOSE:
iTraxx Main

50.5bp, +0.6bp

iTraxx X-Over

252.9bp, +0.7bp

🇩🇪 10 Yr Bund

-0.45%, -3bp

iBoxx Corp IG

B+112bp, +2bp

iBoxx Corp HY

B+422bp, +12bp

🇺🇸 10 Yr US T-Bond

1.90%, -12bp

🇬🇧 FTSE 100

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🇩🇪 DAX

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🇺🇸 S&P 500

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Oh my, oh my…

Yet another great month has passed us by, giving us (so far) the unlikeliest of positive years that we have ever seen for risk markets. IG credit (iBoxx index) has returned over 1% again in July and 7% in the period from January to the end of July. Most investors will have made in excess of 8% depending on their portfolio beta. The CoCo index has stumped up 11% year to date in total returns. The euro-denominated high yield market, is on 8.3% this year to the end of July. It’s like the market, unassisted (by QE), is in the process of smashing records. Equities have with the S&P rising to see fresh record highs having put on over 20% in 2019 to date.

Continue reading

22nd July 2019

Capital appreciation, negative yields…

MARKET CLOSE:
iTraxx Main

58.7bp, -2.1bp

iTraxx X-Over

249.1bp, -3.1bp

🇩🇪 10 Yr Bund

-0.34%, -2bp

iBoxx Corp IG

B+116bp, unchanged

iBoxx Corp HY

B+419bp, unchanged

🇺🇸 10 Yr US T-Bond

2.03%, -2bp

🇬🇧 FTSE 100

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🇩🇪 DAX

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🇺🇸 S&P 500

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The trend is your friend…

An ever-increasing number of corporate bonds are falling into negative yield territory – or offering ever-declining (positive) yield for the rating, with the low hanging fruit just about picked off. With policy easing around the corner, the juice is coming from capital appreciation. The corporate bond market is seen as being a defensive investment (protecting capital) and comes amid little guarantee that traditional capital appreciation strategies (long equities) might be too volatile to pay off going forward.

Fixed income asset prices are rising so rate markets still work (yield becomes increasingly irrelevant) and asset allocators will retain their exposures. We would argue that credit has had its best ‘unassisted’ run in performance since the crisis began and looks set to add to it through the rest of 2019. IG credit sitting on 6% in total returns (iBoxx YTD) is looking at 8%+ come year-end; the AT1 market possibly 13%+ (10% at moment). Eurozone rates have already returned 7% this year!

Continue reading

17th July 2019

Corporate bond market QE – please no!

MARKET CLOSE:
iTraxx Main

50.2bp, +0.4bp

iTraxx X-Over

248.7bp, +2.8bp

🇩🇪 10 Yr Bund

-0.29%, -4bp

iBoxx Corp IG

B+116.2bp, +0.7bp

iBoxx Corp HY

B+412bp, +7bp

🇺🇸 10 Yr US T-Bond

2.05%, -7bp

🇬🇧 FTSE 100

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🇩🇪 DAX

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🇺🇸 S&P 500

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QE ‘fix’ unwelcome…

The corporate bond market is anything but broken. Issuers are easily funding at or close to their lowest ever levels. Investors are hugely receptive of deals – across the ratings spectrum, and by a large margin. Demand for new corporate debt is holding at oversubscriptions typically in the 3x – 7x area. In IG non-financials, the annual run rate is close to a record level, senior offerings are rising and high yield borrowers are also being funded, rather easily.

We would wonder what the objective might be if the ECB get involved again. After all, there is little or no need to reduce borrowers’ funding costs by giving the markets a nudge. There’s plenty of demand from investors with (iBoxx index) yields at record low levels and spreads in some markets heading that way too, again.

It appears in credit as if we have established the set-up for the summer weeks. We’re going to grind a little better in spread terms, returns are likely going to hold up because rates having had their wobbly now appear to have a fresh footing while primary has already slowed. We should come out the other side (at the end of August) with IG spreads heading inexorably towards that B+100bp mark (iBoxx index, currently at B+115bp, -48bp year to date), and total return investors sitting on returns of 10%+ for AT1, in the 8% area for HY and around 6% in IG.

The deals at the moment are hitting the screens with little or no competition but highlighting the grab for yield include Monte Dei Paschi’s T2 offering (coupon of 10.5%, it paid 5.375% in Jan 2018) and after an 18-month absence, Greece’s new administration was back for €2.5bn in a 7-year (with just a 1.9% yield).

Continue reading

14th July 2019

Here comes the summer sun…

MARKET CLOSE:
iTraxx Main

49.3bp, -0.1bp

iTraxx X-Over

245.9bp, -0.1bp

🇩🇪 10 Yr Bund

-0.25%, -1bp

iBoxx Corp IG

B+116.5bp, -0.5bp

iBoxx Corp HY

B+402.8bp, -0.5bp

🇺🇸 10 Yr US T-Bond

2.12%, unchanged

🇬🇧 FTSE 100

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🇩🇪 DAX

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🇺🇸 S&P 500

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Markets play it cool…

Equities in the US into record territory, rates giving up some of their stellar gains and IG credit spreads at levels not seen since May 2018. A dovish Fed has laid the foundations for a rate cut at the end of month FOMC meeting, and the ECB looks as if they will also cut the deposit rate and/or announce a new QE programme. Equities will get a further boost, rates will recover their recent losses and yields will plunge lower while credit spreads will tighten some more as we set the stage for a post-summer rally.

We’ve had far less primary than might have been expected last week and it would appear that the markets have pretty much wound down for the holiday period. We barely added anything in IG, the HY market is yet to see a deal this month – while financials have been busy with some well-received and testy AT1 offerings appealing to the yield hogs.

IG credit spreads have ground out some further performance and the IG iBoxx cash index has tightened to B+116.5bp. That represents 9bp of tightening this month, while returns are only marginally off their year to date highs and up 0.25% in July.

Continue reading