At GAM Investments’ latest Fixed Income Meeting, held on 20 April, our managers commented on current market conditions globally and yield curves in Europe.
Adrian Owens - Global Macro & Currency Fixed Income
Markets have clearly benefited from ever-increasing policy stimulus. With economies slowly reopening, perhaps investors should begin thinking about when the stimulus programmes are going to start easing off and what the effects of this may be. In our view, from here, risk markets look a little vulnerable to a setback. The AAII ratio of bulls to bears is making new highs, equity issuance is breaking recent records and the ratio of insider selling of stocks to buying is also at extremes. With seasonal factors less supportive and HSBC research showing that more retail stocks have been bought in the last six months than in the previous 12 years1, some caution might be advisable. With this in mind, scaling back some of our risk focused on reflation and directing it towards less directional relative value themes seems prudent.
Christof Stegmann – European Credit
European government bonds have been pushing higher with a steeper yield curve over the last week. European investment credit spreads are circa 2-4 bps lower and high yield is lower still, with retail and energy the best performing sectors while healthcare dragged. In this tight environment European BB-rated bonds look the most attractive, in our view, as they have missed out on much of the rally compared to other rated bonds. The European Central Bank announced some weeks ago that it would increase the buy in amounts, however this has not come to fruition yet. Yields on 10-year German government bonds are almost back at the peak level of the pandemic in March 2020 and the future path will mainly depend on the commitment of the ECB to achieve specific yield levels.
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 of current or future trends. 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 securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers.