Wellington Management’s Post

Fixed income investors continue to seek answers to an era of volatile rates. Large, static exposures to credit markets no longer cut it. Instead, a nimble and dynamic approach is more likely to create resilient and consistent total return outcomes - firstly, by cherry-picking US issuers with sound balance sheets and positive fundamentals, and then rotating between buying them on dips when spreads are relatively more attractive, while sticking to US Treasuries for "dry powder" while spreads are tight. It's time for credit selection to shine. #fixedincome #credit #US Capital at risk.

Fixed income investors continue to seek answers to an era of volatile rates. Large, static exposures to credit markets no longer cut it. Instead, a nimble and dynamic approach is more likely to create resilient and consistent total return outcomes - firstly, by cherry-picking US issuers with sound balance sheets and positive fundamentals, and then rotating between buying them on dips when spreads are relatively more attractive, while sticking to US Treasuries for "dry powder" while spreads are tight. It's time for credit selection to shine. #fixedincome #credit #US Capital at risk.

Fixed income investors continue to seek answers to an era of volatile rates. Large, static exposures to credit markets no longer cut it. Instead, a nimble and dynamic approach is more likely to create resilient and consistent total return outcomes - firstly, by cherry-picking US issuers with sound balance sheets and positive fundamentals, and then rotating between buying them on dips when spreads are relatively more attractive, while sticking to US Treasuries for "dry powder" while spreads are tight. It's time for credit selection to shine. #fixedincome #credit #US Capital at risk.

Fixed income investors continue to seek answers to an era of volatile rates. Large, static exposures to credit markets no longer cut it. Instead, a nimble and dynamic approach is more likely to create resilient and consistent total return outcomes - firstly, by cherry-picking US issuers with sound balance sheets and positive fundamentals, and then rotating between buying them on dips when spreads are relatively more attractive, while sticking to US Treasuries for "dry powder" while spreads are tight. It's time for credit selection to shine. #fixedincome #credit #US Capital at risk.

After record investment-grade issuance in January, the receptive market for corporate borrowers could lead to a bumper crop of bond supply in February, a typically quiet month for the asset class. Latest from me at IFR. Syndicate bankers polled by IFR are expecting a slightly smaller US$130bn–$140bn of issuance this month, well beyond what is usually expected for February. In the past, February has not drawn much supply because many non-financial companies were in earnings blackouts. Average issuance in the past five February months have come in at US$118.5bn, according to IFR data. Bank of America analysts said strong investor demand, relatively attractive borrowing costs and the potential for increased M&A-related bond volumes are reasons to expect an unusually hectic month ahead. https://lnkd.in/einKtPfE

𝗖𝗿𝗲𝗱𝗶𝘁 𝗠𝗮𝗿𝗸𝗲𝘁 𝗴𝗲𝘁𝘀 𝗳𝗿𝗼𝘁𝗵𝗶𝗲𝗿, 𝘁𝗵𝗲𝗿𝗲 𝗶𝘀 𝗮 𝗯𝘂𝘁 𝘁𝗵𝗼𝘂𝗴𝗵 Currently, credit markets are adapting to increasingly accommodating monetary policies. However, the likelihood of the Fed implementing an initial rate cut appears to be diminishing. This evolving situation is laying the groundwork for a substantial downturn in junk bonds as the market’s focus shifts from a risk-oriented approach back to core financial fundamentals. This shift is particularly probable if the Fed opts for a more hawkish policy. Presently, there’s a noticeable trend among investors towards less discrimination between high and low-rated junk debtors. This could be an indication of an excess of capital in the system. The spread between bonds rated as BB and B has recently reached its narrowest since 2009, significantly below the decade average nearing 150bps. This mirrors the narrowing gap between BBB and B rated bonds, which hit a 2007 low earlier this month. As pointed out by Goldman Sachs, the EUR CCC Index – the lower end of the High Yield market – experienced a nearly 8% drop last week, effectively wiping out its gains for the year to date. Much of this underperformance can be attributed to a select group of distressed companies that have been attracting increased investor scrutiny. These companies, including global packaging firm Ardagh Group, French telecom behemoth Altice Group, and Swedish debt collector Intrum, appear to be the first signs of a looming wave of challenges for heavily indebted borrowers. When these distressed companies are excluded, the performance of High Yield credit appears as optimistic as the thriving equity markets. As demonstrated by research from Barclays, spreads for non-distressed issuers have now fallen below 300bps, and a third of the High Yield universe is now below 200bps. This suggests a broader market that is priced for near perfection. #creditmarket #bonds #highyield #junkbonds #interestrates #federalreserve

With overnight borrowing rates anticipated to come down this year, captives may be advised to alter their investment strategies and invest in intermediate maturity, high quality fixed-income sectors to maximise returns from a changing fiscal environment. Jack Meskunas, MBA, ACI, executive director, investments at Oppenheimer & Co. Inc., said that because there is growing conviction that the next move for interest rates is down, he is increasingly advocating for the benefits of extending duration. “In plain English, this means moving from money markets, which are essentially seven-day instruments, to bonds with maturities of 3 to 5 years,” he told Captive Intelligence. “What they’re doing is locking in slightly lower rates—maybe 4.75%, 4.8%, or 4.9%—compared to the 5.25% they might be getting in money markets, but they’re locking it in for five years." This Long Read also features comments from Peter Carter, Malcolm Cutts-Watson, John James, Michael Serricchio, J.D, Colin Donovan, Matt Sullivan, CFA, Wade Meadows, Chris Dalziel and Scott Mildrum. #captiveintelligence #captiveinsurance https://lnkd.in/esZSMXfs

As we examine the current risk/reward trade-off of high quality US corporate bonds (investment grade credit), portfolio manager Omar E. outlines why we now think a switch to US Treasury Bonds may be more appropriate. https://lnkd.in/gX7zVPM4 #investing

2023: US govies down 6.3%, corporates up 5.4% YoY US Treasury issuance was estimated to be almost US$4 trillion across 2023 and Q1 2024, a 305.7% increase on the historical average, with Treasuries outstanding set at US$26.4 trillion. Total issuance in 2023 was US$8.3 trillion, down 6.3% year-on-year (YoY). Average daily volumes (ADV) stood at US$1.1 trillion in 2023, up 9% YoY. US Treasury issuance in 2023 alone was US$3.5 trillion, down 8.1% YoY but ADV was up 11$, to US$760.5 billion. Corporate bond issuance in 2023 stood at $1.4 trillion, a +5.4% increase YoY. ADV stood at $42.5 billion, up 6.6% YoY. The findings come in a new report from the Securities Industry and Financial Markets Association (#SIFMA), which studied key trends in fixed income markets in 2023. #fixedincome #treasuries #govies #corporates #bonds #TheDESK https://hubs.li/Q02s3YMS0

https://lnkd.in/dXwxBnGK I have a different view on this JPMorgan Chase & Co. Mentioned below: 1. Improving Economic Indicators: Despite initial concerns about economic slowdowns, recent data releases indicate a robust recovery in various sectors. For instance, unemployment rates have declined, consumer spending has rebounded, and manufacturing activity has picked up. These positive indicators suggest that corporate fundamentals may be stronger than anticipated. 2. Central Bank Support: Central banks have reaffirmed their commitment to maintaining accommodative monetary policies to support economic growth. The Federal Reserve, for example, has reiterated its stance on keeping interest rates low and continuing asset purchase programs. Such measures provide a safety net for corporate bond markets and bolster investor confidence. 3. Resilience of High-Quality Issuers: High-quality corporate issuers with strong balance sheets and stable cash flows have demonstrated resilience throughout periods of economic uncertainty. Companies in sectors such as technology, healthcare, and consumer staples have continued to access capital markets at favorable terms, underscoring investor confidence in their creditworthiness. 4. Investor Demand for Yield: Despite short-term volatility, investor demand for yield remains robust in a low-interest-rate environment. With government bond yields hovering near historic lows, corporate bonds offer attractive yield opportunities for investors seeking income generation. This persistent demand provides support for corporate bond markets despite sporadic fluctuations. 5. Historical Precedents: Historical data reveals instances where corporate bond markets have weathered economic downturns and emerged stronger. During previous periods of uncertainty, corporate bond markets have demonstrated resilience, driven by a combination of investor confidence, central bank support, and improving economic conditions. Thankyou