Fixed income

In the case of Aareal Bank the management decision is understandable in our view; should the market panic and begin to offer extended AT1 bonds at a heavy discount, then investors could see this as a real opportunity over the medium term.

For participants in financial markets a liquidity squeeze that lasts for a prolonged period is one of the most difficult environments to cope with. Correlations break down, markets trade in a vacuum, small trades lead to disproportionate price moves, relative value goes out of the window, panic sets in, selling is indiscriminate. This is where we have been for the last two weeks. So we thought we would share some of these experiences with you and try to rationalise why it is happening and when it might end.

In recent weeks we’ve seen significant sell-offs across all asset classes as investors have been scrambling for liquidity. With most of Europe and the US effectively in lockdown, a recession looks to be inevitable and the question is what this will do to corporates’ ability to service and refinance their outstanding debt, especially for those in the sub-investment grade space.

RMBS bondholders should not fear lenders accommodating borrowers’ short term needs for an extended period of time.

The authorities are now rapidly promising huge aid packages, but how do these aid packages find their way to the people that need aid? This is what is missing

In the last few days the World Health Organisation has declared COVID-19 a global pandemic, the Italian government has imposed a nationwide lockdown on 60 million people, and President Trump has banned all travel to the US from Schengen Area European countries for 30 days.