Investors were bracing for the worst when the Swiss Re Cat Bond Index plummeted 15% in the wake of hurricane Irma. But the unprecedented damage caused could actually be a blessing in disguise for the asset class.
2016 saw some highly successful launches of fixed maturity bond funds as investors took the opportunity to lock in attractive yields combined with reduced duration risk. But are such products still worth buying now, with credit spreads having sunk below their long-time average?
Saudi Arabia’s record debt sale last week showed that emerging market bonds remain in strong demand with yield-hungry investors. However, the question is whether appetite could reverse as quickly as it has in the past.
Investors are fleeing from emerging market debt, and optimism for any recovery in the near term is low, particularly for local currency government bonds.
Investors are in disagreement about whether high yield bonds are a good buy now. A quarter of European fund buyers plan to increase their allocation in the next 12 months, but an almost equally big share of them intend to decrease exposure. Fund flows have also been capricious of late.
In Switzerland, there are more investors planning to increase exposure to high-yield bonds than to all other fixed income categories combined.
In this new series, we ask a fund selector to pick one of his favourite funds and tell us what makes it so good. We kick off with Omar Gadsby, who chose to highlight the Muzinich Long Short Credit Yield Fund.
As the eurozone has been flirting with deflation this year, appetite for inflation-linked bonds has been understandably lacklustre. However, as the oil price started a surprise ascent in April, interest in the asset class rose accordingly. With the oil price now below $50 again, investors are once again abandoning the asset class.
Omar Gadsby, head of fund selection at Credit Suisse, tells EIE’s Tjibbe Hoekstra where in fixed income markets he still finds value
Benchmark 10-year bond yields in the Eurozone have more than doubled since the end of April, when they reached an all-time low. Are we now simply witnessing a correction after markets overshot in the wake of the ECB’s bond-buying programme, or is this the beginning of a serious bond bear market as deflation worries have started to fade?