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9th June 2020

HY Strategy: CMD Portfolio Performance Update 09/06/20

Market Overview

Global risk markets have been ripping higher. The huge liquidity injected into the financial system to help ease the pain of the economic downturn is looking for a home anticipating business as normal through H2. That’s before annual GDP growth shoots higher through the second leg of a V-shaped recovery in 2021.

The drivers are clear. All the data post-April is showing us that we are beginning to claw back lost growth, it’s going to be a long journey. Covid-19 transmission rates and associated deaths are declining. Lockdowns are easing. Economic recovery is picking-up albeit not quite bursting out of the starting blocks. That’s understandable.

Rates are lower for longer. The ECB/EU are adding more firepower to make sure there is no relapse and no deflation.

US equities (S&P) are now flat for the year to date and several good sessions away from their record level. European equities of late have joined the party, commodities haven’t done too badly and credit’s lure is undimmed.

We have a record run-rate in IG non-financial primary issuance, the bank AT1 market has re-opened with some massive investor interest and we can see the first signs of light emerging in high yield primary. S&P’s latest default comment has seen the agency give itself a wide berth as to what the default rate in Europe might peak at – a low of 3.5% and a high of 11.3%, but likely around the 8.5% mark.

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