1. Newsroom
  2. Taking on more credit risk
Menu
UBP in der Presse 03.04.2019

Taking on more credit risk

Taking on more credit risk

Option Finance (21.03.2019) - With economic growth returning to normal, the end of central-bank monetary tightening and an upturn in volatility, bond management could benefit from three main approaches: gradually taking on more credit risk, increasing duration, and seeking liquidity.


As in 2018, global economic growth is likely to continue returning to normal this year. On average, global PMIs are returning to their range of the last six years – between 50 and 53 – the only exception having been 2017 with 55. Global GDP growth is expected to be 3.4% this year, also close to the average seen in recent years*. At this stage we rule out a recession for 2019. We are more likely to see a soft landing typical of a regime in which growth is stabilising.

2019: a record number of volatility spikes?

The current return to normal at the economic level has been accompanied, in the last few weeks, by central banks adopting a new line and embarking on a genuine shift in monetary policy. The Fed and the ECB have executed a rapid, synchronised change of direction, adopting a much more accommodative stance and distancing themselves from their previous monetary tightening.

Furthermore, the Fed has made its monetary policy contingent on inflation, effectively putting hikes on hold for now as US core inflation is still a long way from consistently hitting its 2% target. According to projections, and without an underlying acceleration, core inflation could fall back to 1.6% by the end of this year**.

The macroeconomic outlook is broadly positive, but this is unlikely to spare financial markets from increasingly frequent volatility spikes. In the last few quarters, bouts of market stress have become exceptionally frequent and severe, similar to the shocks seen in 2008. These volatility spikes are the result of geopolitical and political uncertainties, including the China–US trade conflict, political turmoil in Italy and the ongoing Brexit saga. They are also being caused by a growing shortage of liquidity, which plays a key technical and structural role in market movements.

For example, the depth of the US equity market (S&P 500 index) hit historically low levels in 2018, and thin liquidity exacerbated the correction seen in December 2018. As things stand, we could see a record number of volatility spikes in 2019.

Gain exposure to credit through CDS indices, which exhibit higher liquidity

In view of the economic environment, the end of central-bank monetary tightening and the upturn in volatility, bond management could benefit from three main approaches: taking on more credit risk, increasing duration, and making use of liquid debt instruments. The sudden shift in central-bank policy and attractive valuation levels following the December correction have favoured gradually increasing credit exposure. At the same time, with monetary tightening coming to an end, it is becoming attractive to increase interest rate exposure again and therefore build more balanced portfolios. US 5-year sovereign bond yields were close to 2.5% at the end of February, higher than their average over the last five years.

Finally, liquidity remains all-important. To achieve it, we advise using CDS indices, which once again proved their robust liquidity in December, and outperformed corresponding traditional bonds. Against a background of greater volatility, investors should focus on liquid credit instruments, which perform better during times of crisis.

Global & Absolute Return Fixed Income

*Sources: UBP, Bloomberg Finance LP, 31/01/2019

**Sources: UBP, Bloomberg Finance LP, 31/01/2019 UBP projection


RENDU DE LINT Christel.jpg
Christel Rendu de Lint
Head of Fixed Income

Insight

Navigating wealth succession in Asian families

Wealth succession is complex, emotional and can be costly if not managed properly

Read more

Meistgelesene News

UBP in der Presse 02.04.2019

Zürich ist ein zentrales Standbein für die UBP

Le Temps (29.03.2019) - Vor genau vier Jahren hat die UBP die Privatbank Coutts übernommen. Heute verwaltet UBP 25 Milliarden Franken in der Wirtschaftsmetropole der Schweiz und hat damit ihre Kundenvermögen innerhalb von fünf Jahren verdoppelt. Wir haben Adrian Künzi, Leiter der UBP Zürich, getroffen.

UBP in der Presse 26.03.2019

UBP is ready for all Brexit eventualities

AWP (25.03.2019) - Union Bancaire Privée (UBP) anticipated the uncertainties surrounding future relations between the United Kingdom and the European Union. By expanding in London with the acquisition of ACPI and maintaining a strong presence in Luxembourg, the Geneva bank is prepared for any outcome, as its CEO Guy de Picciotto explained to AWP.

UBP in der Presse 19.02.2019

Das Szenario einer sanften Landung wird glaubwürdiger

Le Temps (18.02.2019) - Dem chinesischen Volksglauben zufolge dürfte das soeben begonnene Jahr – das im Tierkreiszeichen des Schweins steht – für den Finanzsektor erfreulich ausfallen, steht dieses Tier doch für Wohlstand.

Auch lesenswert

UBP in der Presse 10.07.2019

Impact Investing - investiere und tue Gutes

Sphere (07.2019) - Die Finanzbranche hat wichtige Aufgaben zu erfüllen – nicht nur in der Wirtschaft, sondern auch in der Gesellschaft, um zur Lösung ihrer dringlichsten Probleme beizutragen. Die Vereinten Nationen haben die zu erfüllenden Ziele in einer detaillierten Liste zusammengefasst. Ihre Umsetzung erfordert beträchtliche Investitionen. Eine besondere Anlageform vereint Rendite mit sozialer Wirkung.

UBP in der Presse 28.06.2019

The wealthiest families are the biggest risk-takers

Le Temps (24.06.2019) - Family offices keep multiplying in Switzerland and elsewhere. They are drawing in financial investments from entrepreneurs with a riskier strategy than pension funds, and are also being entrusted with other key tasks.

UBP in der Presse 17.06.2019

Investing in disruptive innovation

Forbes Middle East (06.2019) - Whereas the financial markets have always tended to focus on the short term, investors need to think beyond that horizon and look further ahead.