25 September 2020
At GAM Investments’ Weekly Fixed Income Meeting held on 22 September, three of our investment specialists discussed their views on current market conditions.
Rahul Mathur – Global Rates
We have three key macro observations at present. First, Asian currencies have reached multi-month highs versus the US dollar on the back of stronger Chinese data and improving North Asia exports. Broader US dollar weakness appears to be coming through in different guises, initially versus the euro during the summer, more recently versus Asian currencies. Second, we continue to see a decline in fixed income volatility across the board, most notably in US rates. To a large extent this has been engineered by global central banks. Arguably, we could see higher volatility in the months ahead. Finally, without clarity on Brexit, we believe the outlook for sterling remains challenging.
Florian Komac – European Credit
Following a period of sideways movements across European credit markets, we have seen spreads start to widen, most notably in the high yield space. On the corporate front, following news of Spain’s Bankia and CaixaBank merger and rumours of a UBS / Credit Suisse tie-up, reports in Italy suggest UniCredit executives have been asked if they would be interested in buying the government’s majority stake in Banca Monte dei Paschi. Could this be the moment consolidation finally starts to occur across the European banking industry? Finally, on monetary policy, the European Central Bank (ECB) continues to look at ways of using its Pandemic Emergency Purchase Programme (PEPP) going forward. More clarity may emerge next week.
Denise Prime – Emerging Market Debt
Sharp EM currency sell offs on 21 September included liquid, high beta EM currencies such as the South African rand, Brazilian real and Mexico peso. We put this down to general risk aversion given the uncertainty surrounding a rise in Covid-19 case numbers, vaccine developments and the US elections coming into focus.
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. September 2020.