January 2019 - Yield chasers back at work - Tactical Fund Manager's Comments

13 February 2019

Cédric Daras, Clement Perrette, David Fung, Gilles Pradère, Olivier Mulin

Convertibles Europe 

Global Bond Total Return 

Asia Bond Total Return


After a painful month of December for corporate bond investors, the market celebrated the return of the Fed’s dovish rhetoric in January. The fact that Jerome Powell indicated greater flexibility in the Fed’s balance sheet reduction was probably what market pundits were expecting to reverse their stance from extremely pessimistic, to optimistic. This change in market perception occurred despite several global macroeconomic issues remaining unresolved. In this context, the well-known yield chasing exercise produced a full-blown recovery in corporate bonds, especially in the U.S. and Emerging markets, simultaneously offsetting Q4 2018’s negative performance. In terms of flows, the US HY ETF’s received $3.1 billion of inflows in January, whereas $ 4.9 billion were redeemed during Q4 2018*. HY Credit spreads are now half way between the end of Q3 levels and December’s highest point. The short-term price action does not necessarily reflect an accurate picture of economic conditions, we therefore recommend investors to have an eye on fundamentals, which should eventually prevail.

US HY Credit offset its Q4 2018 losses

US HY Credit offset its Q4 2018 losses


US High Yield Credit = HYG Index

Credit spread numbers have been obtained from Ice Bond Indices

*figures based on Bloomberg US HY ETF list