Markets reacted violently as global economies adopted shelter-in-place policies to combat the spread of Covid-19 earlier this year. Corporate bond credit spreads (or risk premiums), driven by heightened uncertainty and revenue pressure, widened dramatically to reflect the increased risk of downgrade and default. While the magnitude of the sell-off was significant, the direction seemed quite logical given the sudden halt of global commerce.
Asset prices contain enormous amounts of information. This information is typically characterised as being both forward-looking and related to the economy – money-weighted investor expectations about future company earnings, defaults, inflation, monetary and fiscal policy. And, in our opinion, this is almost right. Asset prices consist largely of forward-looking expectations, but they also contain information about the current state of the financial system itself.
We all know – or rather, have heard of – Warren Buffet. One of his more famous mantras is: to get rich you need to be fearful when others are greedy, and greedy when others are fearful. Of course, this is much harder than it sounds, particularly over the long term. But it captures well how we have traversed asset markets in the short but tumultuous recent months, raising our appetite for risk near the March nadir, and then reversing back down to neutral at the end of June.
How the 2020s could be similar to the last decade with low growth, inflation and interest rates; and how quality should outperform value in this environment
Global economic activity has suffered a “sudden stop” as authorities have sought to contain the spread of the Covid-19 virus by shutting down economies.
The swift and intense economic volatility caused by the Covid-19 crisis has left investors with something of a blind spot. Traditional business cycle analyses have no inputs for a global pandemic, making it hard to judge how to position portfolios for a market rebound.
The Columbia Threadneedle Investments fixed income team provide their weekly snapshot of market events.
The coronavirus is a social issue that has brought unprecedented disruption to societies and is impacting the wellbeing of the world’s population. Capital markets are responding to this challenge with more than $9 billion of social bonds issued in the past three weeks, all from supranational entities. However, more can be done, and this presents a great opportunity for governments to follow suit.
In our commentary from 10 March we noted the fragility of the current financial system and its dependency on cheap debt. Our view is unchanged that, besides the virus, the primary drivers of this bear market are the credit metrics (more on that shortly).
Concerns around coronavirus have been felt in global equity markets for more than a month now. However, things escalated last week, with the steep sell-off in oil further compounding fear around the recessionary impact of the virus.
The coronavirus outbreak is extremely complex, with the fear of the virus so far seemingly greater than its actual impact. The economic consequences, however, are very real.
For the past 10 years, I have been positive about the prospects for equities.
But at the end of May, I downgraded my view to neutral as the trade war between the US and China escalated. The rhetoric between the two superpowers was becoming more hard-line, and I foresaw the risks for equities rising. It appeared to me that the Chinese had decided to take a firmer line in negotiations, reducing the chances of a deal.
Investing responsibly in real estate is complementary to our core objective of delivering strong risk-adjusted returns for clients. Here, we outline our approach to managing property assets and demonstrate how we apply these principles.
Every risk has attached to it a price. Lately the facts have evolved, mostly in a negative direction: trade wars have resurfaced, risks of an unfavourable Brexit are back in focus, and at least some corners of financial markets are firing warning signs about the future path of economic and earnings growth.
Columbia Threadneedle Investments fixed income team provide their weekly snapshot of market events.
Five years after we launched the UK’s first social impact bond fund open to both retail investors and institutions, the Threadneedle UK Social Bond Fund is growing up fast
World equity indices plunged during Q4 last year before staging a powerful recovery, regaining virtually all the ground they had lost. This extraordinary turn of events may look irrational, but it tells a coherent story about the fragility of investor confidence as we navigate the end of this economic cycle and approach the US elections in 2020.
In the space of just 12 months, markets have switched from expecting interest rate rises to expecting interest rate falls. Broadly speaking, this means 2019 should be a good year for fixed income. But investors are treading a fine line and need to differentiate between fixed income strategies
The UK’s departure from the European Union is still up in the air, despite setting a new date in October for leaving. There remains no clarity on where the country will stand in terms of a deal by the time the formal process is triggered. When the UK finally leaves, it probably faces two extremes – a hard or soft Brexit.