29 May 2020
At GAM Investments’ Weekly Fixed Income Meeting held on 26 May, several managers discussed their views on the fixed income space across emerging and developed markets.
Florian Komac – European Credit
At present, we see a positive picture within European markets, as economies begin to reopen amid stabilising rates of infection. Germany and France are attempting to create a EUR 500 billion bailout plan for other EU countries. Meanwhile, Austria, Denmark, the Netherlands and Sweden have formed the ‘frugal four,’ who would prefer to give money in terms of loans, rather than grants.
On the corporate front, the mothership of Europe’s largest airline group, Lufthansa, has agreed to a government bailout, in which the German government will purchase 20% of the airline. Travel stocks have risen on the back of this news. Meanwhile, automobile giant Volkswagen lost a legal battle in Germany’s highest civil court. The case concerned a car buyer being compensated for a secondhand minivan that was fitted with emissions-cheating software. This could lead to further payouts down the road, to tens of thousands of consumers.
Casey Goldmann and Jack Flaherty – US Credit
US corporate bond spreads are continuing to tighten as the states across the US slowly emerge from lockdown and open up their economies. Positive vaccine news is also encouraging. New issuance continues strongly even with no super-sized deals last week. Investment grade (IG) corporate debt issuance has already topped USD 1 trillion year-to-date as companies address urgent liquidity needs. Overall, while economic news can hardly be described as upbeat, recent housing market statistics, including US applications for home mortgages, have been better than expected. It is worth noting that Federal Reserve (Fed) officials appear reluctant take interest rates below zero.
Rahul Mathur – Global Rates
We are seeing promising data for the growth outlook emerge from the US and the eurozone. In the US, a pickup in air travel numbers and non-travel leisure spending are both positive. This is obviously contingent on the extent and timing of individual state re-openings. In the eurozone, there is a pickup in energy consumption and trucking/haulage data. The overall rate of improvement is slow, which is consistent with the gradual lifting of lockdowns across the different economies.
We continue to monitor the situation in Mexico, where household consumption was under severe strain even before the pandemic. We anticipate that the lagged effect of tight monetary policy and a drop in remittances, as well as the sharp deterioration of the labour markets, will reduce inflation pressures over the next three months. The relative stability of the peso may also start to deliver downward pressure on inflation.
Source: GAM unless otherwise stated. The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a security is not a recommendation to buy or sell that security. The companies listed were selected from the universe of companies covered by the portfolio managers to assist the reader in better understanding the themes presented. The companies included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. May 2020.