European investors are sitting on large cash piles, and are waiting for volatility to ease a bit before hunting for opportunities.
The decision by the ECB to include investment-grade corporate bonds in its asset purchasing programme has led to a spike in issuance and to yields edging even lower. While this market response was anticipated by the central bank, its stimulus efforts threaten the viability of the asset class in the longer term .
Equities and high yield bonds follow each other wherever they go, both when it comes to fund flows and returns, as we discussed last week on this site. The Barclays Global High Yield Index even followed stocks down on Monday in the aftermath of the breakdown of talks between Greece and its creditors. So, if high yield bonds behave more like equities than like investment-grade bonds, what does that mean for portfolio construction? Should the seemingly inseparable twins be placed in the same classroom or is it better to separate them?
With QE over in the US and interest rate rises on the horizon, we asked the EIE editorial panel how investors should protect themselves.
Conservative Danish investors are caught in a trap – they are all bearish on traditional fixed income but they are also heavily committed to it.