Fixed income

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?

TwentyFour's CEO, Mark Holman, discusses market conditions in Q2 2021 and provides his outlook for the year ahead.

Whether the Bank of England halts all purchases in August or merely begins to slow the pace of purchasing later in Q4 this year, by 2022, less technical support will exist for gilts.

TwentyFour Partner and Portfolio Manager, Douglas Charleston, explains how ABS markets have performed in Q2 2021 and provides his outlook for the year ahead.

TwentyFour Partner and Portfolio Manager, Gordon Shannon, discusses how the short term bond strategy has performed in Q2 2021 and provides his outlook for the upcoming months.

After a hawkish turn from the Fed at its June policy meeting, the response in US Treasury markets has confounded market participants and intensified the debate over ‘transitory’ inflation.

Based on these metrics, the picture seems rosy, and credit performance looks set to continue through the second half of the year should the main drivers of the recovery remain intact.

According to Mark Holman, CEO at TwentyFour Asset Management (a boutique of Vontobel Asset Management), he is currently spending at least 40% of his time talking about inflation, or more accurately, why the US Federal Reserve seems to have a different view of inflation to almost everybody else.

As companies and individuals adopt sustainable practices, we believe the potential exists for inflationary consequences.

Doing the necessary work to understand the difference between companies merely exposed to COVID restrictions and those structurally damaged by them continues to be extremely important.

Douglas Charleston examines the health of labour markets across key developed economies and why ABS investors shouldn’t fear the gradual removal of COVID related job support schemes

It is hard to draw any immediate conclusion from this transaction other than Repsol's notable persistence to obtain sustainable financing.

In both instances, the good intentions of the regulator and the authorities are clear… But at the same time both changes have the potential to cause an increasingly undesired side effect.

Given the magnitude of the amounts involved we do think there is potential for some temporary volatility in the US Treasury market as the volumes change. We will be keeping a keen eye on both in the months ahead.

As we approach the quieter summer months, fixed income investors have some good news and they have some bad news.

Yesterday the US Federal Reserve released the results of its annual bank stress test, subjecting the 23 largest US lenders to a punitive set of scenarios. Some observers might think the events since March 2020 had been sufficient to test the resilience of the banks, but the Fed went beyond this recent real-life challenge and tested bank balance sheets against a range of hypothetical crises.

We have a high opinion of Kensington as a mortgage lender and when we score it for ESG as part of our investment analysis it performs very well even without this latest Green initiative, but we do feel it can stretch further.

All told, while we think relative value in WBS can be attractive, we believe the trend of refinancing in the bond market is only going to continue in the coming years, though it will be gradual.

With all of the recent data pointing to higher inflation expectations and the Fed expected to maintain a transitory interpretation, we will be focusing our attention on comments from the various regional Fed presidents on conditions that could prompt a tapering move at some point in the future.

Since their inception in 2013, Additional Tier 1 (AT1) bonds have developed into a $250bn multi-currency asset class that, with a high level of due diligence, can offer an attractive opportunity for fixed income investors facing another decade of ultra-low yields.