Yields

Will volatility in government bonds continue? Has fixed income seen “peak ESG”? And what will be the biggest driver of returns?

Last week’s rise in UK government bond yields prompted the bonds of UK financial institutions, both banks and insurers, to underperform other regions, a trend also seen in the equity market.

We saw a sell-off across the UK Gilt curve on Wednesday with yields rising by 4bp at the short end and 11bp at the long end. This took the 10-year Gilt to 4.80% and the 30-year Gilt to 5.35%, with the latter bringing the unwelcome headline that UK borrowing costs are at their highest since the last century.

Spread tightening has left some market participants nervous about fixed income valuations going into 2025, but we think the drivers of recent credit performance are unlikely to weaken materially in the coming months.

With a macro backdrop of falling rates and solid global growth, TwentyFour Asset Management's Eoin Walsh says fixed income investors can expect healthy total returns in 2025.

With elevated yields and inflation expected to come back to target, we think investors can target a level of real return that was extremely difficult to achieve in the previous cycle.

A lot has happened since our last blog about the state of affairs in the European High Yield (HY) market. At the time, the sector had just seen three of the largest capital structures of Altice France, Ardagh Group and Intrum AB announce restructuring advisors in quick succession, with growing fears that it would represent the start of a wider default trend.

The global financial crisis was a seismic shock to banking systems globally, and triggered a regulatory marathon with banks having to adapt to a far stricter set of rules (known as Basel III) set out by the Basel Committee on Banking Supervision (BCBS).

On ​​​​​this webinar, Chris Bowie (Partner, Portfolio Management) provided a macro update on fixed income markets and how these views are reflected in the positioning of our short-dated funds.

Quarter ends are always a useful time to take a step back and assess what the main macro drivers during the quarter were, which trades worked and which did not and to refresh macro views for the next period.

Income has returned. After a couple of barren years, yields in high-quality bonds that were not too long ago returning just 2% or 3% are now set to bring in 7% to 8%. And this jump in yields looks to be a game changer for investors.

Last year saw returns in European high yield (HY) of approximately 12%, driven by tighter spreads (-102bps) and lower government bond yields (five-year bunds were -59bps).