23 October 2020
At GAM Investments’ Weekly Fixed Income Meeting held on 20 October, three of our investment specialists discussed their views on current market conditions.
Florian Komac – European Credit
Despite making markets nervous, rising Covid-19 case numbers and further lockdowns have not impacted the high yield (HY) or investment grade (IG) markets significantly in recent days. In the IG market, however, certain high beta asset classes, such as corporate hybrids, have experienced some volatility, similar to equity indices. In the HY segment, there are signs that sectors with higher exposure to restrictions, such as leisure or retail, might be impacted more severely. Overall, despite negative headlines and elevated macro uncertainty, investors appear to have confidence that policymakers will continue to support markets. This week saw the first debt offering of the European Union's socials bonds, aimed at funding job support programmes as part of its pandemic response programme. The EUR 17 billion offering was nearly 14 times oversubscribed.
Amy Kam – Asian Credit
Corporate fundamentals continue to be resilient in Q3. While leverage has unsurprisingly trended up, liquidity and debt service ratios are stable. More upgrades are occurring in the IG credit market than downgrades while the HY market is seeing reduced downgrades. Geopolitical tensions between the US and China continue to create noise, but so far the selling caused by the expanding US entity list of Chinese companies has been easily absorbed, and most names on the entity list have domestically focused operations anyway. The Hong Kong Autonomy Act (HKAA) sanction list of individuals also warrants monitoring. Overall, the market is very constructive but the consensus heavy overweight positioning in risk assets is a risk of its own, in our view.
Paul McNamara – Emerging Market Debt
After a challenging September, emerging market (EM) bonds and currencies have partially clawed back losses so far in October. While the global growth outlook is steadily improving, rising Covid-19 case numbers in Europe and new lockdowns clearly impact GDP numbers. However, at the margins, data is improving and EM currencies have started to firm up, which should ultimately be supportive for EM bonds. Like the majority of market participants, we are closely following the US elections.
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. October 2020.