The TwentyFour Blog

As we rapidly descend upon the fourth quarter of this extraordinary year, we think some of the risks fixed income investors faced back in Q1 will rear their heads again before the end of 2021.

Despite the impressive returns of Euro HY over the last year or so, the backdrop for the asset class continues to suggest there is more upside to come.

This supply surge can be very welcome for those investors with cash to put to work, though it is also eyed with caution.

As the Delta variant establishes a hold in many countries, forcing some governments to re-assess reopening policies, the market is beginning to feel its impact. The implication on growth remains unclear, but early indications suggest the growth rate may have peaked for this year, albeit continuing its recovery.

Last week, Morgan Stanley successfully brought the first public German Multifamily CMBS deal (HAUS - Eloc 39) to market since 2013. Despite coming to the market in the middle of the summer, the deal has attracted strong demand across the capital stack.

When combined with other prevalent market dynamics, the favourable ratings trend paves the way for a highly supportive fundamental terrain as we advance through the cycle and one that is ideal for portfolio managers selecting credits.

We can model all kinds of credit risk as long as there is enough protection in the structure for investors to get comfortable with a degree of residual value risk.

After a hectic first half of the year, most investors, including us, were hoping for a dull summer to recharge our batteries, but it seems there’s no respite from the CLO machine.

As many of you know, with the roots of our business firmly embedded in the European ABS market, we have long sought to dispel the myths surrounding our market by explaining its underlying mechanics and how investors can fully exploit its unique properties.  

It is quite rare that we recommend playing in the very bottom of the credit spectrum because CCC rated bonds are where at least 95% of all defaults come from, and are significantly more volatile than we would like.

We agree that banks are sitting with an abundance of excess capital and will use some of it to repay shareholder support. However, capital buffers will remain elevated for some time to come,

So far, lockdown restrictions have suppressed each wave of the virus; will the competent authorities have the conviction to see this latest wave through without erring on the side of caution once again?