Market updates

At 8.1m, the number of job openings as of March 31 was the highest it has been since the data series began some 20 years ago.

Markets can often be tricky for investors in May as bond issuers take advantage of a window of opportunity following the Q1 earnings season and ahead of the typical summer lull. This often results in heavy supply in late April and early May, hence the old trader adage of “sell in May and go away”.

As long as coal usage is not illegal, a private buyer of any origin will be able to purchase these assets cheaper and run them for as long as possible with no regard for ESG matters.

There has been a lot of focus on the performance of the high yield markets since the start of the year, particularly in Q1 when many rates markets were selling off aggressively.

Crucially while the Fed may wait to see the evidence, markets won’t, and we therefore expect a ‘second wave’ of Treasury selling to happen well before then.

Having been at the heart of the GFC and then contributing to the Eurozone sovereign crisis, we have long argued the European banking sector would have to prove its newfound resilience to investors by successfully navigating a challenging period.

While higher interest and inflation rates may more predominantly impact owners of long-duration assets in a variety of ways, they are also simply a positive signal of strong economic growth, which is a good thing. They also should enable for a more generally healthy pricing environment for risk assets. Higher interest rates are not necessarily something terrible to be only feared.

Tobacco company bond spreads were volatile last week on news that the Biden administration is exploring a ban on menthol cigarettes and may pursue a policy to reduce nicotine levels in all cigarettes to non-addictive or minimally addictive levels. Rumours about an increased tobacco tax also surfaced, further shaking up the industry.

Had this happened a month ago, we suspect the move would be materially more pronounced, and the muted reaction indicates to us that markets are now quite comfortable with the current levels of expected growth, forecast inflation, and yields.

George Curtis discusses how credit markets have performed in Q1 2021 and provides his outlook for the year ahead.

What is most interesting about the CS situation though is that to us it illustrates the ability of large banks to bolster capital when such events occur, and the range of options they have to do it.

With US President Biden’s $1.9 trillion Covid relief package, alongside the recently proposed $2.25 trillion in infrastructure projects, there is growing concern about the impact these programs could have on inflation and interest rates globally. In the investment world, we have been operating amid declining rates and low inflation for so long that few may realize the impact rising rates would have on investment returns.

ESG conscious investors, ourselves included, of course, are applauding this brave decision by Barclays to put their conscience before profit, but they are not the first to do so.

TwentyFour partner and portfolio manager Gordon Shannon looks at the developments we saw in investment grade credit in the first quarter of 2021 and provides his outlook for the rest of the year.

This recent stability in the rates curve suggests to us that for now the market is listening to the Fed’s rhetoric and as a result the UST market feels better balanced.

TwentyFour AM partner and portfolio manager Douglas Charleston discusses how ABS markets have performed in the first quarter of 2021 and provides his outlook for the rest of the year.

With treasury yields moving aggressively higher this year, anyone reading or listening to the financial press will have become very accustomed to headlines highlighting the negative performance of “Bonds”.

There are many other aspects of SFDR to discuss and we expect the market to take some time to fully adjust.

Primary deals launched in the European high yield market over the last two weeks have been diverse, and at times opportunistic.

In terms of execution, it is difficult to assess any ‘ESG premium’ in Brass 10 given the overall strong demand, and in our view it’s still early to weigh the importance of a ‘social’ label for ABS investors.

The Fed maintained its dovish stance on Wednesday and offered very little in the way of resistance to the ongoing rise in US Treasury yields.

For most investors this deal would likely be considered a liquidity position, and at a spread of 15bp this is certainly not the sexiest proposition the European ABS market has to offer, but what is interesting about this latest instalment from the STORM platform is what makes the deal ‘Green’.

The bear steepening of the US Treasury curve has undoubtedly been the story of 2021 so far for fixed income investors, many of whom will have felt the adverse impact of the broad rates sell-off on their portfolios.

For fixed income investors, we think floating rate European ABS bonds could be an allocation consideration to help improve return prospects and reduce volatility.