Market updates

In our view the rationale for the premium is certainly weakening and, of course, we can no longer call it a ‘Brexit’ premium.

The market craves stability and transparency. As an efficient auction mechanism, it relies on visibility to price stocks and economic activity. Typically, the market—and people in general—do not like change, but this time, as we stand at the precipice of a tremendous change, what we are seeing is actually a potential return to real stability, normality and transparency.

TwentyFour AM partner and portfolio manager Douglas Charleston discusses Q4 performance for ABS markets and provides his outlook for 2021.

TwentyFour AM partner and portfolio manager Chris Bowie looks back at investment grade credit market performance in 2020 and provides his outlook for 2021

For high yield issuers 2021 has started in a similar vein to 2020, with the technical backdrop providing an attractive environment for capital raising.

The US dollar had a wobbly start to the new year which seems to bode well for emerging market currencies. However, dollar weakness is just one of multiple reasons why EM local currency debt will own the decade of the “Roaring Twenties”.

Our analysis indicates European ABS investors can carry forward little concern about nasty default surprises, and this is likely to be important when considering total returns for 2021.

At the moment CLO spreads are tightening, as they are right across credit. However, we haven’t had any CLO primary deals come to market so far in 2021, so we are operating in a bit of an informational vacuum, at which point these cross-asset class comparisons can be useful.

As we have said many times over the past few months, this cycle is likely to be remembered (among other reasons) as being exceptional for its unprecedented momentum.

Most commodities are on a winning streak right now. Even oil, which still faces fragile demand, has the potential to trade north of 60 US dollars by mid-year thanks to recent unilateral Saudi Arabian production cuts.

So while we do believe inflation will push higher in 2021, we don’t think this will be a major issue for the central banks.

Partner and portfolio manager Gary Kirk discusses why he thinks AT1s continue to look attractive in the search for yield.