High Yield Bonds

We have talked regularly about avoiding ‘next year’s skeletons’, and this is now more pertinent given the strength of the current technical backdrop, combined with spread levels that are significantly tighter relative to this time last year.

Fixed income investors are well versed in the risks of ‘fallen angels’, investment grade companies whose bonds tumble in value once they are downgraded to high yield.

September new issuance has opened with a bang as we expected. Volumes are high and the issuer types are diverse, with a slant towards more frequent borrowers who tend to have their ducks permanently lined up in order to jump on favourable conditions. We expect this trend to continue throughout September as bankers push borrowers to take advantage of what could be one of the best opportunities they might see this cycle.

The average yield of the bond market today is 1.46%, while its average duration is 7.05 years, going by the widely used proxy of the Barclays Multiverse Index.

The current US economic expansion is now the longest in modern history, and investors globally will be seriously contemplating the end of the credit cycle. This late-cycle period could prove particularly challenging. Mark Holman, chief executive of TwentyFour Asset Management presents five tactics for fixed income investing late in the credit cycle.

Today marked the arrival of a long expected event, namely the inversion of the US yield curve between two and 10 years. This is an important event as historically it has been a very reliable indicator of impending recession. History tells us that once the 2s-10s curve inverts, on average a recession is a year to 18 months away.

Over the past few weeks there has been a noticeable increase in high yield new issuance, bringing a welcome flurry of activity to what has so far been a relatively benign year.

TwentyFour CEO Mark Holman explains how high conviction thinking runs right through the firm’s investment process, and why he believes a concentrated, flexible portfolio is critical to combatting the unique challenges facing fixed income markets today.

With so much going in the markets, we decided to delay our 2019 outlook slightly, in order to meet with as many analysts and strategists as possible and ensure we had time to sensibly comprehend the recent turmoil. Recapping 2018 has not been an enjoyable exercise, but an important one if we are to move ahead with the right lessons and expectations for the coming year.

“This time next year, Rodney…”

It is that time of year when we traditionally look ahead to the new year and make predictions on the performance of various asset classes, sectors and industries.

On Monday my colleagues on TwentyFour’s Multi-Sector Bond desk published a blog on rising default risks in high yield credit. Dummen Orange, Douglas, Boparan, Moby, Galapagos and CMC Ravenna are some of the obvious under-pressure names held in loan funds and CLO portfolios that are trading at a significant discount in the market.