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Elevated income buffers adverse market development
With yields at almost 10% p.a., US HY offers investors a very solid buffer during adverse market development. This can be illustrated by a hypothetical multi-factor 12-month scenario, stressing the projected total return with a
Income on European loans in context with default losses
Historically, the income and total returns on European broadly syndicated loans have been comfortably exceeding realized default losses. This trend is evident from the chart with incomes, comprising of interest and fees, exceeding 4% and
First lien loans keep outperforming other high yield credit markets
After a difficult 2022, first lien syndicated loans have been generating exceptional performance so far this year, returning 8.5% YTD as of August. Thanks to floating-rate coupons and consequently short duration, the senior first lien
Increase in US real rates supports credit investments
Following further slowdown in inflation expectations, real rates have surged in the last three months and are now exceeding 2%. The positive long- and short-term real rates benefit fixed income investors across entire spectrum of
Spreads on BBB CLOs remain high despite structural strengths
At 430 bps, the spreads on BBB-rated US CLOs remain well above BBB bonds (140 bps) and even split-rated BBB/BB loans (270 bps) – see chart 10 above for overall CLO yield context. There are
Syndicated loans discount margins remain elevated
While increasing risk free rates have been the key drivers of rising yields and returns of syndicated loans during the last twelve months, the credit spreads, represented as discount margins over floating benchmark rate, have
Emerging Markets Credit Spreads Tightening
Credit spreads on emerging market debt have tightened significantly since late last year. While slowing-down inflation in the US has supported the overall EM sentiment, one of the key internal drivers of the EM rally
Paradigm Shift In Rates: Higher & Inverse
One of the fastest rate increase paths in modern history has led to a true paradigm shift in US Treasury rates. Compared to one year ago, the rate levels are now higher and have negative
Increased risk-/return profile of US loans vs. US HY bonds
Since 2000 the share of US loans rated B and below has more than doubled and now accounts for 57% of the total loan market. In contrast, the weight of HY bonds rated B and
Central banks’ balance sheets changed course
Central banks moved away from easy money policies and changed course. Not only the interest rate hikes but also the liquidity withdrawals have affected the markets and will continue to do so. After years of
Rising expected default rates reflect weakening economy
Slowing global economy, combined with tightening financing conditions and input costs inflation will lead to higher expected credit default rates in 2023 and beyond. In our observations, market participants expect that defaults would peak at
“Sleep well at night” – Das Konzept geht auf
Getreu dem Motto: “Sleep well at night” erläutert Reto Ineichen, CEO & CIO von Alpinum IM, im Interview mit Fundbridges Geschäftsführer, Claude Hellers, welche Strategien Investoren auch in schwierigen Zeiten ruhig schlafen lassen. Mit einem
Alpinum Alternative Investment Strategy – Downside Resilience
Investors continue to face an adverse environment across major asset classes. The sustained headwinds and uncertainties require active management, diversification and downside management capabilities, all attributes of an absolute return mindset. Alpinum feels comfortable in
Several central banks in Europe followed the ECB hike of early September
September was characterized by key interest rate hikes by several European central banks. The ECB increased deposit rates for the second time this year at the beginning of September as inflation rates had risen to
US investment grade short-term yields reach 10-year record high
The Fed’s rate hike path in 2022 is driving up bond yields in all markets. For example, the yields of short-term bonds (1-3 years) in high yield and investment grade bottomed out in 2021 and
Alpinum IM becomes PRI Signatory
We are pleased to announce that we have become a signatory to the UN-supported Principles for Responsible Investment (PRI). Becoming a PRI signatory is an important milestone for us and forms part of our broader
Yield curve indicates economic weakness, lower inflation
In March 2022, the USD swap curve inverted, and by the end of August, the spread between the two- and ten-year maturities fell to -0.6% (see also the Alternative Credit Letter of April), suggesting imminent
Two HFM European Performance Award Nominations
HFM European Performance Awards 2022
Markets price in a peak Fed Funds Rate of 3.4% in February 2023
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
Horrific YTD performance for global high quality bonds
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 chart below shows the individual calendar
Alpinum Alternative Investment Strategy – Downside Resilience
The markets are anything but calm at the moment, and this applies to all asset classes. We are feeling comfortable in this environment right now, as our absolute return philosophy and draw down risk management
Short Term High Yield Rates are attractive again @ 7% p.a.
Yields of US short term low grade bonds broke through the 10-years average of 5.7% and reached a level slightly above 7% in early May. The yield curve steepening by more than 200 bps over
Yield curve inversion signals economic weakness ahead of us
In macro-finance, it is well known that an inverted yield curve is signalling a recession or at the very minimum, it is indicating that the economy is operating in a late cycle. For example, the
EUR Swap rates soar and put pressure on short-term bonds
An interest rate swap is an agreement between two parties to exchange fixed and floating interest payments with each other over a specified period of time. At the time of the swap agreement, the total
Credit spreads spiked to August 2020 level in two weeks!
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
Credit spreads widen most when economic cycle is mature
Looking back at the last rate hike cycle (2015-2018), credit spreads for both high yield and investment grade bonds (see blue line) were not immediately negatively affected when the Fed rates started to take off.
Real rates reach record low levels of -6.8% in USD
Since the beginning of 2021, breakeven inflation has risen sharply, and has reached almost 3% at the end of October, while breakeven inflation has been relatively steady at Investors have somehow learnt to deal with
Is inflation about to peak?
Since the beginning of 2021, breakeven inflation has risen sharply, and has reached almost 3% at the end of October, while breakeven inflation has been relatively steady at around 2% over the past decade. Despite
Loans performed well, while high yield faced some headwinds
Leveraged loans continued to perform well during the recent risk-off mode and upmove in interest rates, while US high yield bonds were negatively affected. The floating rate feature in leveraged loans offers a clear advantage
Long-term equity return expectations
The term “mean reversion” assumes that numbers will tend to converge or normalize to the long-term average over time. In economics mean reversion is often referred to GDP growth, interest rates and inflation. In finance
Opportunities in Asian high yield bonds
The Chinese government’s direct interference be it in on education stocks, be it on tech stocks or IPOs (ANT IPO) is a demonstration of power by the authorities and that they are serious about their
Credit risk premium at major resistance level
The option adjusted spread (OAS) over US Treasuries for B rated US high yield bonds has recently hit its major historical resistance level of 290bps (currently 341bps). In other words, the credit risk premium has
High expectations for US tech stocks
Within the S&P 500 index, the technology sector makes up 27% of the index, reached a price/sales ratio of 7.5x and has become more expensive than it ever was during the dot-com era. Valuations are
Biggest perceived market tail risks
The Bank of America’s most recent Global Fund Manager Survey shows that the biggest perceived market tail risks are in inflation (29%) and a “taper tantrum” (26%). On sector level the survey shows that fund
CLOs offer an attractive premium
CLOs (collateralized loan obligations) have always offered an attractive premium to bond or loan spreads, but investors continue to overlook the asset class due to their complexity and as they tend to be less liquid
Catalysts needed to keep equity rally
Governments and central banks around the world remain committed to generous fiscal stimulus measures and keeping the cost of capital at historic lows. This combination is about to initiate a new investment cycle as companies
The Global Composite PMI at a 15-year high
The Global Composite PMI has reached a 15-year high of 58.4 and after a decade of worries about inadequate demand and spending power in the aftermath of the global financial crisis, the shortage of supply
The new normal
Economies typically normalize again after bust/boom periods with inflation at marginally higher levels. The US is about to reach peak GDP growth levels, due to unprecedented monetary and fiscal stimulus measures. While the real economy
Loan Rating upgrades & downgrades
During 2020, 45% (USD 521 bn) of the loan market by par amount had received a rating downgrade from a total market size of USD 1.2 tn. However, the flood of corporate downgrades has ebbed
Sherman ratio -interest risk measure
Year-over-year, the Barclays Global Corporate Investment Grade Bond index (Global Corp IG) has returned +8.3% (duration 7.2 / yield-to-worst 1.7%). The Sherman ratio is an interest rate risk measure and represents the yield per unit
Income Returns have descreased
Income returns have decreased by almost 70% for European investment grade bonds and by around 50% for European high yield bonds over 2007 to 2020. European loans, however, have been much less affected as the
Long-term interest rates have spiked
Long-term interest rates have spiked from historical low levels in anticipation of a strong recovery. With the US ISM Services PMI surging to an all-time high of 63.7 points (previous month 55.3), US long-term interest
40ft container Shanghai to New York
Chinese producer price inflation (PPI) accelerated from 0.3% year-over-year (yoy) in January 2021 to 1.7% yoy in February 2021. For March, an advance PPI inflation tracker points to an increase of 5% yoy. Global price
US treasury yields have risen
US treasury yields have risen from 0.8% end of 2020 to currently 1.7% and bond investors have suffered painful losses on their long-duration bonds (up to -5% ytd). Senior secured loans are valued with a
Global reflation
Global reflation continues and inflationary pressures are building. From semiconductor chips to copper, demand is on the rise while capacity remains constrained. While Western governments have largely maintained consumer income, investments into production capacity is
10yr US Treasury yields rose 60 bps
Since December 2020, 10yr US Treasury yields rose 60 bps, while expected inflation remained flat at ~2.2%. Inflation (i.e. measured by “PCE” = Price Consumer Expenditures) will likely pick up significantly from current levels of
US consumer spending
US consumer spending is the engine of economic growth and is close to 70% of GDP. According to a recent survey by the Harris Poll, 71% of Americans say they miss socializing in restaurants and
US bond market
The US bond market has seen the 2yr/10yr US treasury yield curve steepening. The steepening is justified by the cyclical rebound, pent-up demand and higher inflation. Should inflation surprise on the upside and long-term yields
SPACs acquisition companies
SPACs are special purpose acquisition companies designed to enable their managers to have funds available to make acquisitions quickly and on an opportunistic basis. Thanks to their asymmetric return profile, SPACs popularity has shot up
Europe’s cyclical/defensive stock ratio
Compared to the US, trade and manufacturing make up a larger share in the European economy and Europe’s cyclical/defensive stock ratio is a good indicator for the global industrial cycle and the direction of US
Government Bonds slide
Year-to-date long-term government bonds have slid across the world, reflecting investors’ expectations of an economic recovery. The US Treasury 7-10yr total return index is down -1.7% ytd (current yield 1.18%), while the German Sovereign 7-10yr
Inflation
Inflation remains a distant threat as both the output and unemployment gap will remain meaningful in 2021. That said, year-over-year inflation rates will temporarily jump as numbers were extremely depressed at the nadir of the
Economic Stimulus
No central bank and no government wants to remove economic support too quickly and there is plenty of economic stimulus for companies profit margin to recover over the coming months. This is thanks to the
Europe is back in partial lockdown
Europe is back in partial lockdown and economic volatility is expected to be higher beginning of 2021. At the same time, the European Central bank continues to press on the gas pedal and Eurozone money
Investment Grade credit tightened
Investment grade (IG) bond credit spreads have further tightened and have reached almost pre-Covid levels. The upside of IG bonds is limited taking into account their embedded “duration” feature. In comparison, spread levels in the
Central banks purchased 6 tln debt
In the first half of 2020, major central banks purchased USD 6 trillion in public and private sector debt. In comparison, the same central banks spent USD 1.5 trillion on quantitative easing measures after the
Central banks unprecedented influence on capital markets
Central banks unprecedented influence on capital markets and their coordination with central governments will put a backstop on the economy in the US and Europe. Rating agencies have started to revise downwards their projections for
US Fed interest rate cut by 50bps
In a surprise move, the US Fed cut interest rates by 50bps to the 1-1.25% range. At the same time, the yield on the 10-year US Treasury note fell below 1% for the first time
COVID-19 – Hong Kong Tourism
The Hong Kong Tourism Board November 2019 number for visitor arrivals to Hong Kong dropped to 2.6 million. This is close to half of the long-term average since 2011 of 4.65 million arrivals per month.
Contingent Convertibles (CoCos)
Yields on US and European contingent convertible bonds (CoCo) have dropped to 4.2% and 2.7%, respectively, and option adjusted spreads (OAS) are below -1.8 standard deviations for both segments. Investors are flocking to the deeply
S&P 500 – over 200-day moving average
The S&P 500 index is trading at the highest level over its 200-day moving average since 2000. Various technicals for the S&P 500 are extended, begging the question on how long the rally can last.
Search for yield continues
The search for yield continues and the spread between the Barclays B rated US High Yield index and US treasuries narrowed to just 300 bps or a yield to worst of 4.9%. This is the
Wipe out Investor’s yield
The duration of the Barclays Global Corporate Investment Grade Bond index has increased from 5.9 end of 2013 to 6.9 end of 2019. During the same time period, the yield-to-worst fell from 2.9% to 2.2%
Narrowing yield premium: Greece vs. Italy
The yield premium between Greek 10yr government bonds (1.4%) and Italian 10yr government bonds (1.2%) has not been that narrow since 2009. This despite the fact, that Greece is a non-investment grade country with a
Asian USD High Yield Corporate Bonds
The yield spread among Asian USD high yield corporate bonds (7.3% yield) and US high yield corporate bonds (5.6% yield) remains attractive at 170bps. If the US and China manage to agree on a “phase-one”
US Export numbers weaken
While business sentiment and export numbers are weakening, the consumer is in good health and remains the backbone of the US economy. Personal consumption advanced by +2.9% (Q3 annualized) and helped to prop up US
US/China Trade War
Market nervousness regarding the US/China trade war may have reached a temporary peak and has calmed down. At the same time, the yield spread between Asian USD High Yield Corporate Bonds (yield-to-worst 7.7%) and Global
S&P Global Credit Rating
S&P Global Credit Ratings continue to deteriorate and Q3 2019 saw 164 downgrades versus 64 upgrades. This is the lowest ratio (0.39) since 2015 with the majority of the cuts being applied to the high-yield
30-year German bond yielding -0.11%
Germany has the world’s first 30-year bond priced with a yield of -0.11%. In fact, Germany’s whole yield curve is now below 0%, meaning that the government is effectively being paid to borrow out to
German 10-year bond yield
Germany’s 10yr bond yield is about to fall below the European Central Bank’s deposit rate as speculation abounds that more policy easing may be coming. The negative yield environment has accentuated even more and forces
USD Index
Technically the USD index (DXY) has broken through its 200-day moving average. Expected US Fed rate cuts for the rest of the year and signs of slower growth ahead should begin to erode the US
ECB more easing
The European Central Bank is prepared for more easing and the search for yield has become even more pressing. Whether right or wrong but 5yr Greek government bonds yield now less than 5yr Italian government
S&P 500 stocks yielding more than 10yr US Treasury bonds
According to FactSet, 44% of S&P 500 stocks yield again more than 10yr US Treasury bonds at 2.14%. Investors have little choice to go elsewhere and stocks should find marginal buyers again.