Index data provided by Markit Group Ltd
i) Returns January 2019
Bond market returns updated monthly
We can be relieved that we have started the year so well, and have some performance booked which we can fall back on should it go awry anytime (as is likely going to be the case).
Equities have been in relatively good form. The Dax returned 5.9% in January, the FTSE struggled on currency strength and Brexit uncertainty but still managed to rise by around 3.7%. Over in the US, the S&P returned 7.9% and the Dow around 7%. Some of that was gathered on the back of expectations of a more dovish Fed and on a mixed earnings season, and the rest coming from hopes that the US/China will find a solution and/or will muddle through – all as growth slows.
Rates market investors have also had a good opening period. Eurozone government bonds have returned 1% (iBoxx index) in January supported by macro concerns and a more dovish central bank outlook. The economic news has Eurozone growth on a downward trajectory and in bit of a rut. The 10-year Bund yield might have popped as high as 0.26% earlier in January, but it is now back on a downward trend, ending the month at just 0.15%.
The weakness on the growth front isn’t temporary, and this is not just a soft patch. The incoming data – everywhere – points to the weaker economic environment extending for a good while yet. And as we have opined previously, a hard Brexit (no deal) will plunge the Eurozone region into even greater weakness. The EU has plenty of previous for making last-minute decisions, and if we are going to the wire regards the Withdrawal Agreement, then rates are going to be well-supported through the rest of the quarter at least.
After a fairly tragic 2018, credit has at least managed to stage a good recovery in January. IG spreads (iBoxx index) tightened by 12.5bp and the index returned 1.1% with most of the performance coming in the second half of the month. IG sterling corporates returned 2% with spreads 15bp tighter. In the higher beta sectors, the CoCo market benefited from just looking too cheap and the index tightened by 100bp whilst returning 3.5% in January. The high yield index also showed upside albeit a little more modestly in comparison, with 35bp of tightening in the index with returns of 2.1% for the month.
MiFID II is HERE
ii) IG & HY Corporate Bond Total Returns (Annual)
iii) Investment Grade Corporate Bond Total Returns (Annual)
iv) High Yield Corporate Bond Total Returns (Annual)