Asset Backed Securities

Clearly this shock/stress test is a severe scenario, but given the uncertainties that COVID-19 has thrown our way, as debt investors we would rather be overly conservative.

In recent weeks we’ve seen significant sell-offs across all asset classes as investors have been scrambling for liquidity. With most of Europe and the US effectively in lockdown, a recession looks to be inevitable and the question is what this will do to corporates’ ability to service and refinance their outstanding debt, especially for those in the sub-investment grade space.

It has been a challenging couple of weeks for obvious reasons.

Partners and Portfolio Managers Ben Hayward and Doug Charleston provide an update on the TwentyFour Income Fund and TwentyFour Monument Bond Fund.

We noted with interest two headlines yesterday: Italy to suspend mortgage payments amid outbreak and RBS and NatWest offer mortgage breaks for customers affected by coronavirus

CEO Mark Holman provides his outlook for credit markets in 2020, highlighting investment themes and sectors that still offer fixed income investors good relative value.

Given the material positive performance seen in other parts of the fixed income markets in 2019, the CLO relative value proposition now looks even more attractive.

Ben Hayward looks at the Q4 performance for Asset Backed Securities and provides an outlook for the year ahead.

We have already highlighted the blistering pace of bond sales in both Europe and the US, and this being met with apparently insatiable demand from fixed income investors. Since European ABS markets tend to lag broader fixed income, it seems fitting that we have had to wait another week before seeing that primary machine start to accelerate.

It is not clear to us just how much more monetary easing will placate equity investors, and we see a real risk that when we enter the third quarter earnings season next week, company specific data from the bottom up will be more of a shock than the macro picture has been.

Rates risk is not something we concern ourselves with too much in the European ABS market, so normally news of inverted yield curves and 30-year US Treasury yields dropping below 2% would largely wash over us. This is because pretty much all ABS bonds are floating rate, so there is no duration. Or is there?

One of the market’s chief obsessions in 2019 has understandably been the shifting stance of the US Federal Reserve in relation to the path for interest rates, with investors now pricing in a 100% chance of a rate cut at the end of this month. Now that the June FOMC minutes, Nonfarm payrolls, Jerome Powell’s testimony to Congress, the June CPI and PPI numbers and the Trump-Xi meeting at the G20 in Osaka are behind us, what is the next set of data that may shed some light on the Fed’s next policy move?