Restoring default settings

High yield default rates from 1983 - 2013

The maturity cliff for high yield does not begin to look daunting until 2017. That is one reason why default rates have been significantly lower than their long-term average over the past decade and why they may stay low for a few years yet. A rise in defaults might be that elusive catalyst for a sell-off. But the current environment is very benign.

Alex Veroude, Head of Credit, Insight Investment

The maturity cliff for high yield does not begin to look daunting until 2017. That is one reason why default rates have been significantly lower than their long-term average over the past decade and why they may stay low for a few years yet. A rise in defaults might be that elusive catalyst for a sell-off. But the current environment … read more

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Fuelling the rise of leveraged loans

Quarterly issuance of leveraged loans in the US

After a hiatus in leveraged loan issuance during the credit crisis, the leveraged loan market is back again, to a large degree this has been driven by CLO issuance. Credit funds also represent another source of investment capital in the US with leveraged loans forming part of retail investors’ portfolios.

Ranbir Singh Lakhpuri, Portfolio Manager, Insight Investment

Pro rata loans consist of revolving credits and amortizing term loans. They are traditionally syndicated to finance companies and banks. Institutional debt consists of term loans structured specifically for institutional investors, including CLOs, although some banks buy institutional term loans.

After a hiatus in leveraged loan issuance during the credit crisis, the leveraged loan market is back again, to a large degree this has been driven by CLO issuance. Credit funds also represent another source of investment capital in the US with leveraged loans forming part of retail investors’ portfolios. Ranbir Singh Lakhpuri, Portfolio Manager, Insight Investment Pro rata loans consist … read more

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The week that was…

In the week ending 8th May, what stole the financial headlines?

Pro-Russian rebels declared a resounding victory in referendums on self-rule in the eastern regions of Ukraine. The EU had denounced the referendums as illegal and moved closer to extending sanctions to companies, as well as individuals, linked to the annexation of Crimea. Meanwhile, the proposed £63bn bid by Pfizer for AstraZeneca triggered a political storm, with concerns about potential job losses.

Headline Hotlist & World/ Asset Returns Source: The BNY Mellon Investment Strategy and Solutions Group (“ISSG”) as at 12/05/14. ISSG is part of The Bank of New York Mellon

Pro-Russian rebels declared a resounding victory in referendums on self-rule in the eastern regions of Ukraine. The EU had denounced the referendums as illegal and moved closer to extending sanctions to companies, as well as individuals, linked to the annexation of Crimea. Meanwhile, the proposed £63bn bid by Pfizer for AstraZeneca triggered a political storm, with concerns about potential job … read more

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Waiting for the outcome of India’s election

Who can be trusted to make sure the country’s economy is on the right track?

The country has done well in recent weeks in anticipation of a change in government but we think maybe there is too much optimism there. In India it is quite difficult for things to change quickly on the political front because of entrenched bureaucracy; it is a very cumbersome, chaotic country in many ways. We would like to see improvement in India, the potential there is potentially enormous if one day effective economic policy could be put in place and if corruption levels were to be reduced. It is something we continue to watch very closely. However, for the moment it remains a fairly trading-oriented market that generally looks quite expensive.

Jason Pidcock, Portfolio Manager, Newton.

The country has done well in recent weeks in anticipation of a change in government but we think maybe there is too much optimism there. In India it is quite difficult for things to change quickly on the political front because of entrenched bureaucracy; it is a very cumbersome, chaotic country in many ways. We would like to see improvement … read more

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Going for gold

Central bank net sales and purchases in tonnes

Looking ahead, we feel that economic growth will disappoint, particularly given the negative backdrop of demographics and the over indebtedness of the Western world. This disappointment will arguably lead to some level of restructuring, reneging or debt default by governments, as growth struggles to keep up with state spending and obligations. Therefore, an allocation to ‘real’ assets – within a multiple of select asset classes and securities – seems prudent in our opinion. We aren’t alone; gold has been a source of net demand by central banks since 2009. This is expected to continue through 2014.

Suzanne Hutchins, Newton’s Real Return team.

Looking ahead, we feel that economic growth will disappoint, particularly given the negative backdrop of demographics and the over indebtedness of the Western world. This disappointment will arguably lead to some level of restructuring, reneging or debt default by governments, as growth struggles to keep up with state spending and obligations. Therefore, an allocation to ‘real’ assets – within a … read more

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The week that was…

In the week ending 24th April, what stole the financial headlines?

The world’s financial headlines remained centred upon the Russia/Ukraine crisis as the potential impact of economic sanctions on Russia continued to be speculated upon. Meanwhile, US President Barack Obama suggested further sanctions were imminent. It was a busy week for the US president as he began his Asian tour with a trip to Japan. Obama caused friction with the Chinese government after he was quoted as saying that a chain of East China Sea islands, known in Japan as the Senkaku and in China as the Diaoyu, were covered by a security treaty between the US and Japan and therefore fell under the territory of the latter. The sovereignty of the islands has long been a source of strained relations between Beijing and Tokyo.

Headline Hotlist & World/ Asset Returns Source: The BNY Mellon Investment Strategy and Solutions Group (“ISSG”) as at 25/04/14. ISSG is part of The Bank of New York Mellon.

The world’s financial headlines remained centred upon the Russia/Ukraine crisis as the potential impact of economic sanctions on Russia continued to be speculated upon. Meanwhile, US President Barack Obama suggested further sanctions were imminent. It was a busy week for the US president as he began his Asian tour with a trip to Japan. Obama caused friction with the Chinese … read more

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