Fixed income

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.

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,

If we suppose a bond investor views an upcoming event as a potential threat to their positioning, they may attempt to hedge their portfolio with another position. The event passes, and the hedge works, but to the investor maintaining the hedge seems like a good idea in the aftermath. Do you maintain the position or remove it?

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?