March 2019 - World Negative Yielding Debt Back to Peak Levels - Tactical Fund Manager's Comments

10 April 2019

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

Convertibles Europe 

Global Bond Total Return 

Asia Bond Total Return 

The softening in global growth pushed central banks to adopt a generally dovish monetary policy stance. This marked a reversal in the normalization process undertaken by the Fed especially. In this context, interest rates adjusted swiftly and the US 10yr Treasury yield dipped from a high of 3.24% in November to 2.41% at March-end. The 10yr German Bund yield closed the month at -0.07%, exploring the negative territory which it was in 2016. This effect, combined with significant credit spread compression since the beginning of the year, brought to 17% the percentage of Investment Grade bonds trading at negative yields (based on Bloomberg Barclays Global Aggregate Index which has a total market cap of USD 52 trillion). This market configuration could represent a tailwind for lower credit quality bonds but as far as we are concerned, we will not simply fall in the scheme of chasing yields at any cost! Our approach has always been in a risk/reward perspective in an attempt to avoid negative asymmetry trades. Therefore, we will continue to stick to our disciplined approach of being selective and diversified in this environment.

World Negative Yielding Bonds

Source: Bloomberg, RAM, as of 29.03.2019