Multi-Sector Bonds

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.

The UK’s political situation, and in particular the harder Brexit stance of the frontrunner for next prime minister, Boris Johnson, has provided the market with a steady stream of headlines over the past few weeks. As a direct consequence sterling is close to 6% off recent highs and domestic credit spreads have also underperformed their European and US peers.

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.

We hear from the portfolio managers about how their fixed income specialism gives them a unique insight into global bond markets.

A quick look at the dashboard of 16 fixed income indices I track clearly shows the amount of pain experienced by investors so far this year. Of the 16 indices I follow, which include IG corporates, government bonds and high yield all denominated in sterling, euros and dollars, Bank CoCos, £ and € Sub Insurance, three hard currency corporate EM indices and the G7 govvie index, only two had a positive total return for the year at the end of October.

Fixed income managers never like to start their week reading headlines about potential defaults in the high yield sector, but sadly this has been one of those Mondays.

Typically in August, credit liquidity becomes a bit like my lawn this summer: patchy. Over the past few weeks there have been a few stories of large fund groups seeing significant outflows from the asset class, and even of liquidations, which begs the question: what are they selling?

We have had a lot of discussion, both internally and externally, over the last few days around when might be the time to begin adding more risk to portfolios again.