Markets and support over the last few weeks
- Fixed income has been cautiously optimistic over the past few weeks.
- Global lockdown measures have meant that infection rates are coming down, giving hope that economies will re-open soon and that growth will rebound, allowing credit markets to normalise following the significant sell-off earlier in the year.
- There has been unprecedented support from central banks. The Fed has been purchasing corporate bonds for the first time, which has dealt with the liquidity issues from Q1 and there seems to be no limit to what central banks will do to help, which should give investors comfort.
Recovery in China, signs for global data
- The next few weeks will show whether global markets generally have seen the worst.
- Recovery has not been as fast in China as one would have hoped, according to the latest data.
- Initially there were hopes of a V shaped recovery, but it is looking more U shaped at best.
- A fear factor could be at play where many are choosing to stay at home and get take-aways, for example, despite many restaurants and facilities being open.
- Therefore, we can’t assume a big bounce in the economic data in the West when things start reopening.
Data: Fixed Income, Equities and CDS Indices
- The data for April and May should be better than previous months, which should be enough for fixed income investors, who need the situation within credit to stabilise to pick up yield and get carry.
- Macro-economic recovery and earnings need to improve before the equity market can get more comfortable. However, liquidity has improved thanks to central bank action and there is more two-way flow in the credit market.
- It’s important to be invested in the more liquid part of credit to trade in and out of positions easily. One way to achieve this is through CDS indices to help gain efficient exposure to credit markets and easily trade if the macro scenario changes.
- CDS indices tend to outperform in moments of stress.
Senior Analyst Portfolio Manager & Macro-Strategist