Category Archives for "Fixed Income Market"
|MARKET CLOSE 2019:|
|🇩🇪 10 Yr Bund
|iBoxx Corp IG
|iBoxx Corp HY
|🇺🇸 10 Yr US T-Bond
|🇬🇧 FTSE 100 7674.56, (+0.85%)||🇩🇪 DAX 13526.13, (+0.72%)||🇺🇸 S&P 500 3329.62, (+0.39%)|
It won’t be as exciting in 2020, not least because we will not be looking at 15%+ credit returns from AT1 debt markets, or even close to the 10.7% we saw in high yield – or upwards of 6% in IG. Nor will we be looking at record issuance levels from the IG and HY market. We’re going back to a more normal climate for corporate bond markets. Corporate bonds are meant to be a boring investment: You know? Buy the bond, clip the coupon, get money back at maturity, invest in the next issue. Welcome 2020.
We should get support for the market from lower levels of IG issuance (-15% versus 2019’s record €320bn), stable to quite likely improving macro and the ECB’s QE related corporate bond purchases. There will be an element of investors being crowded out of IG by the ECB’s manipulative hand (aka 2017), while adding high yield risk as rates (and defaults) remain low for an extended period.
We should be thinking in terms of a little above 1% of total returns in IG – unspectacular (granted!), but the grind tighter will also mean IG spreads are going to close in on their record tights (iBoxx). We could see returns of up to 4% in high yield as a strong bid for higher-yielding paper is sustained through the year. Subordinated debt will be an outperformer again.
So take some risk. We would suggest taking an excess beta portfolio positioning and set up for compression between IG and HY markets (overweighting subordinated debt – both financial and non-financial).