10 July 2020
At GAM Investments’ Weekly Fixed Income Meeting held on 7 July, three of our investment specialists discussed their views on current market conditions.
Tom Mansley – Mortgage-Backed Securities
Markets are being driven by liquidity support from governments and central banks, along with Covid-19 news and prospects for reopening economies. In the US, unemployment is already back down to 11% and heading to single digits, although we do not think we will see the 3.5% pre Covid-19 unemployment levels. There is constrained supply and pent up demand in the US housing market. More people are buying property outside of metropolitan areas and low mortgage rates make such housing affordable. Overall, prices in the residential MBS market continue to recover and are slowly drifting higher.
Florian Komac – European Credit
It has been a relatively benign week for risk markets. Spreads mostly tightened across the board in both investment grade and high yield markets. The only real outliers were in energy and leisure and, to a lesser extent, automotives. Italy has released a plan to boost the ailing economy by investing in education, infrastructure, digitalisation and “simplification” of its cumbersome bureaucracy. Meanwhile, the 'frugal four' remain sceptical of any attempts to boost the European economy. The UK has also communicated a plan to spend several billion pounds resuscitating its domestic markets, which may jump start the economy as lockdown eases.
Romain Miginiac – Subordinated Debt
Subordinated financial markets started the month strongly, with spreads moving tighter. Ahead of Q2 2020 results that are set to be released from next week onwards, where we expect balance sheets to remain very robust despite Covid-19 uncertainty, we continue to see a steady stream of supply. Issuers have been taking advantage of better market conditions to pre-fund issuance needs for the year. As spreads remain wide, we have seen new deals come with spreads of above 600 bps on new AT1 CoCos, for example, which we continue to see as very attractive.
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. July 2020.