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Alpinum Investment Management provides you interesting macro-economic observations as well as market reflections in general and on fixed income markets in particular.
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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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.

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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

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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

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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%

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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”

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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

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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

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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

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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

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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

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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

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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

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