Results for search of category: Corporate Bonds

Credit Quality Concerns

While newspapers are fretting about the valuation of Technology stocks, our models suggest that there is a growing problem with US High Yield credit. This is not confined to the Energy sector and may soon impact US Investment Grade. Our previous note highlighted the importance of Investment Grade as an end of cycle indicator.  [Read More... ]

A Warning from History

There is a lot of concern that the ultra-low level of volatility may herald the death of the global equity bull market. But historically this has been a poor indicator (as have Tech bubbles). Two which have worked in the past are very low exposure to US investment grade credit and very high exposure to Eurozone Equities, both of which we have now. But the lead-time from here could be between 10-30 weeks  [Read More... ]

Comforting Conclusion

We are now very close to the all-time low on our index of multi-asset volatility, but setting a new record is not really important. What matters is how quickly we revert to the median and what leads us higher. Previous episodes suggest that the reversion takes 8-10 months, and is led by US High Yield and US REITs. The numbers also suggest that global equities could correct by 10-15% without significantly damaging investor psychology.  [Read More... ]

In Praise of Cash

US cash deposits are a neglected asset class. Our models suggest that US Treasuries, Gold and Investment Grade bonds have a low or no-better-than-evens chance of beating cash on a risk-adjusted basis. If you don’t have to own them, you should be reducing your exposure. Our numbers do not include the risk that the Fed decides to surprise on the upside in 2017.  [Read More... ]

How to Manage Falling Treasuries

We think that the best way dealing with falling Treasuries is to stay in fixed income and to seek out situations in the credit markets, which are priced for high levels of risk, and where volatility is still falling. The problem with reducing duration or buying inflation-linked bonds is that the Fed and other central banks can force you to unwind it if they want to.  [Read More... ]

Catastrophically Awful

The scores for the Financials sector in our Eurozone and Pan-European equity models are catastrophically awful – as bad as those for US Financials at the onset of the Lehmans crisis. The only possible conclusion is that the Eurozone financial crisis has already begun. The three large banks with the worst individual scores are Unicredit, Intesa and Deutsche Bank.  [Read More... ]

Safe, Deep Water

Don’t waste time worrying about all the things which could go wrong after Brexit. It’s better to focus on areas where there is potential for positive returns. We maintain our exposure to a broad spread of US fixed income and are adding to Emerging Markets in equity and fixed income. Find the safe, deep water; stay away from the rocks.  [Read More... ]

Maxed out

US investors have been generating equity-like returns from some aggressive strategies in domestic credit markets. Our models suggest that they are almost “maxed out” on credit risk and pro-cyclicality within fixed income. By the end of Q3 they will have to rotate these positions into US equities, or close them.  [Read More... ]

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