Market updates

Unlike the past six months, where nearly all new deals performed well in the secondary market, from here on in that is far from guaranteed. Expect winners and losers.

Autumn is the season of crisp breezes and spectacular views – but hardly for investors, whose vision is impaired by US elections and Covid-19. While the fog engulfing the US presidential race may lift soon, continued uncertainty calls for a higher position in US Treasuries. However, equities still shine, in our opinion.

Corporate hybrids have evolved in recent years into a large and well-established asset class within the European fixed income market, with €185bn of bonds outstanding.

In this short video, TwentyFour CEO Mark Holman outlines what he expects to see from bond markets in the next few weeks, and explains why he thinks fiscal stimulus in the US can be the catalyst for the rally to resume in the medium term.

The press can have their sensational headlines, but these stories have little substance when it comes to the impact on the reputation risk of banks or indeed any significant impact on their balance sheets come May 2021.

The weeks leading up to the US elections are likely to be volatile. A “Democratic sweep” would have the most negative impact on risky assets but benefit utilities and renewable energy companies, whereas a Trump win would trigger an equity relief rally and further benefit Big Tech, healthcare and communication services firms.

One of the legacies of Europe’s post-crisis lending landscape was a huge retrenchment in risk appetite, amplified by a lack of bank capital and in some instances funding for an extended period of time.

With September set to be the first negative month for most risk asset markets since March, it is worth analysing what has been driving the reversal.

Overall CLO and loan performance have exceeded our expectations, though there are still plenty of headwinds for the market, chief among which is the prospect of further lockdowns and more economic disruption as Europe battles a second wave of COVID-19 cases.

Overall, in our view there may be some temporary volatility ahead which investors can try to sidestep or even take advantage of, but it’s probably not worth trying to be too cute as our medium term outlook is still constructive.

The Bank’s ability to dampen market volatility has certainly been a comfort to fixed income investors; over the last month £ IG spreads have moved in a range of just 4bp and ended tighter than they started, which compares rather favourably to the 5% peak-to-trough swing in GBP-USD over the same period.

A cut by the Fed or the BoE from here would mean negative rates, while the ECB already has its deposit rate deeply negative at -0.5%.