Archive

Monthly Archives: August 2020

31st August 2020

🚀 US equities provide the rocket fuel

MARKET CLOSE:
iTraxx Main

54.2bp

iTraxx X-Over

320.7bp

🇩🇪 10 Yr Bund

-0.40%, unchanged

iBoxx Corp IG

B+124.5bp, unchanged

iBoxx Corp HY

B+458bp, unchanged

🇺🇸 10 Yr US T-Bond

0.70%, -3bp

🇬🇧 FTSE 100

5860.28, (+1.29%)
🇩🇪 DAX

12645.75, (+0.82%)
🇺🇸 S&P 500

3465.39, (+0.34%)

A brave new world…

We are off and running proper for the year’s final run-in. The big takeaway is that it’s low rates, forever. We knew it anyway. But it is always reassuring that the Fed’s Chair effectively confirmed it last week. The ECB and BoE will follow suit. The S&P is through 3,500 while the tech-lite Dow has managed to claw itself back almost into the black for the year.

Improved corporate earnings and a greater contribution from ‘traditional industrials’ as the economy opens up suggest that the path of least resistance is for equities to push higher. There’s never a no-brainer trade, but we believe the S&P index is heading for 3,700 by year-end.

Event risk – be it geopolitical, macro or whatever, and trepidation of rising valuations will occasionally serve to check asset price inflation. In addition, US election politics will increasingly take centre stage and we could anticipate a more volatile period through October. However, we should at least feel comfortable that central bank policy isn’t going to scupper risk asset performance for a good while yet.

Continue reading

26th August 2020

🏃 Hurdles Ahead, But They’re Not Insurmountable

MARKET CLOSE:
iTraxx Main

54bp, -0.4bp

iTraxx X-Over

322.4bp, -5bp

🇩🇪 10 Yr Bund

-0.41%, +2bp

iBoxx Corp IG

B+124.5bp, unchanged

iBoxx Corp HY

B+459bp, unchanged

🇺🇸 10 Yr US T-Bond

0.71%, +3bp

🇬🇧 FTSE 100

5860.28, (+1.29%)
🇩🇪 DAX

12645.75, (+0.82%)
🇺🇸 S&P 500

3465.39, (+0.34%)

Buttressing balance sheets…

There’s probably more to come. Corporate hybrid issuance that is, where deals have been prevalent in these last few sessions. We’ve had dual tranches from Vodafone and OMV with Solvay also lifting €500m. Yield levels are low for issuers but high enough to make them attractive for investors. The rest is as we know – investors need yield and to get it they have to move down the credit curve and/or the capital structure curve.

“Rates are staying low, forever.” We need to get used to that idea, if we are not already. The equity risk premium looks elevated on historical measures, but those measures are redundant in this world of low rates and excess system liquidity. Furthermore, the potential for further policy action suggests that equities have room to rise much further. And higher-yielding fixed income markets will remain better bid.

By extension we can, of course, make the old argument that it is better to buy a subordinated hybrid bond from a well-known large IG-rated corporate than perhaps a HY bond issue of a leveraged, potentially ‘zombie” business. However, we think both markets will benefit in the near term at least as they are dragged higher, if nothing else, by rising equity markets.

Continue reading

24th August 2020

It’s Been a Yawn…But No Longer

MARKET CLOSE:
iTraxx Main

53.7bp, -1.3bp

iTraxx X-Over

325.7bp, -6.6bp

🇩🇪 10 Yr Bund

-0.50%, unchanged

iBoxx Corp IG

B+125bp, -0.5bp

iBoxx Corp HY

B+467bp, -3bp

🇺🇸 10 Yr US T-Bond

0.64%, unchanged

🇬🇧 FTSE 100

5860.28, (+1.29%)
🇩🇪 DAX

12645.75, (+0.82%)
🇺🇸 S&P 500

3465.39, (+0.34%)

Wake up, wake up…

Much of the month, for European credit market investors, has been a washout. But we’re back, not quite with a vengeance, but the deals are on the screens and we are off and running. The big question on everyone’s lips centres on issuance volumes. Do they continue at the previous pace, or have we simply brought forward the issuance?

Right now, coronavirus vaccine hopes are lifting the markets (again) and there is a bullish tone in equities, which has a good chance of carrying us into the end of the year. The S&P continues to set fresh record highs. And it’s all the rage now that there are legs in this rally. It might be a tech/pharma-related melt-up, but it will nevertheless drag other risk markets higher as well. Also, it might ultimately have some bearing but we’re not sure which, if any, Presidential candidate the market is discounting.

Continue reading

16th August 2020

💷 HY Strategy Portfolio: 14.2% returns in 4 Months

Market Overview

Mid-August greetings – and what a surprise. The US equity markets are toying with a record high in the case of the S&P index. Other markets are feeding off it, rising tides and all that. Should it be so? We’re still gripped by the coronavirus pandemic, as well as the timing of potential for the development of an effective vaccine (facing continual lockdowns, and closing air bridges etc).

There’s also plenty of uncertainty in the West (and others) versus China on a whole host of issues. The US election is also now firmly in view and market volatility in the weeks around it could be something else.

That aside, easier liquidity conditions are here – forever, it seems; In fact, we’re going to see said conditions ease more. That is, there’s more stimulus coming. That money will need a home, so look for ‘the bubble’ to inflate some more and valuations to continue to not fit with any historical models. The message is clear – don’t fight it, chase it. Look for a good run into year-end.

Continue reading

2nd August 2020

👣 Feet up for summer

MARKET CLOSE:
iTraxx Main

60.3bp

iTraxx X-Over

374.8bp

🇩🇪 10 Yr Bund

-0.53%, +2bp

iBoxx Corp IG

B+136.8bp, unchanged

iBoxx Corp HY

B+498bp, unchanged

🇺🇸 10 Yr US T-Bond

0.53%, -1bp

🇬🇧 FTSE 100

5860.28, (+1.29%)
🇩🇪 DAX

12645.75, (+0.82%)
🇺🇸 S&P 500

3465.39, (+0.34%)

But difficult to put pandemic behind us…

The fat lady’s been belting out the tune at the top of her voice. It sometimes feels like it’s all over. European country GDP numbers for Q2 were worse than feared. The US economy contracted by almost a third year on year, or some 9.5% quarter on quarter, in Q2. Relations between the US (and increasingly by the ‘western’ world) with China are deteriorating by the day.

We have regional lockdowns to contend with as the virus continues to spread at an alarming rate. The pandemic will continue to define our Q3. The earnings season in the meantime has come in as expected – weak earnings generally, albeit with a few bright spots. But markets are hanging in there. Year to date performance has recovered well after taking that early Q2 battering.

Continue reading