Alternative Credit Letter
The “Alpinum – Alternative Credit Letter” provides a quick and concise overview of the credit and fixed income markets. Charts with long data series enable the reader to put the prevailing market environment better into historical context.
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In March 2022, the USD swap curve became inverted and by the end of August the difference between the 2-year vs 10-year tenors fell to -0.6% (see also Alternative Credit Letter in April), a signal
The peak Fed funds rate is currently priced in at a level of 3.4% (down from >4% in mid-June) for February 2023. However, the shape of the curve is of even greater importance. The inverse
Fixed income markets suffered in June another painful month. For example, high yield bonds are down -7.3% and -16.7% YTD, the worst half-year performance since the global financial crisis in 2008. The sell-off this year
The Bloomberg Global Agg. Bond index, which is composed of corporate and government bonds, experienced with a decline of -11.6% year-to-date by far the worst performance on record! The losing run came only to a
Yields of US short term low grade bonds broke through the 10-years average of 5.7% and reached a level of 6.9%. Since the Fed signalled a faster pace of interest rate increases in the coming
In macro-finance, it is well known that an inverted yield curve is signaling a recession or at the very minimum, it is indicating that the economy is operating in a late cycle. For example, the
Within a matter of only two weeks, European High Yield spreads have jumped to a spread level of 480 bps, well above the last 5 years average of 366 bps and back at August 2020
Looking back at the last rate hike cycle (2015-2018), credit spreads for both high yield and investment grade bonds were not immediately negatively affected when the Fed rates started to take off. However, the more
Investors have somehow learnt to deal with low or negative nominal yields. But now, as real yields fell to record low levels such as -6.8% in the example for short-term real rates, bond investors need
The hawkish tone of Powell’s remarks on November 30 surprised the market and the yield curve flattened significantly as a consequence. While long term rates retreated considerably, the Fed funds futures imply a sooner Fed
Leveraged loans held steady during the risk-off mode in the 2nd half of September. While US high yield bonds were negatively affected by higher trending interest rates and falling equity markets, leveraged loans benefitted from
While high quality bonds with close to zero yields haven’t offered a feasible investment opportunity since a long time, equities rallied over the last 18 months. However, equities trade now at elevated levels in a
Since December 2020 US long term nominal yields (US Treasury 10y) rose 60 bps, while expected inflation (US Inflation Swap 5y5y) remained flat at ~2.2% Markets incorporate a benign outlook, but inflation will pick up significantly over
With the arrival of the pandemic crisis, the FED had cut rates aggressively close to zero. In addition, it had announced an adaption of its interest rate policy towards an “average inflation targeting” and that it will keep
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