Tuesday 28th July 2015
NEWS TICKER, Monday July 27th: The Spanish Mercado Alternativo Bursátil (MAB) has admitted INCLAM to list on the market’s growth company segment. The company will trade from July 29th this year. Its trading code will be INC and trading will be through a price setting mechanism which will match buy and sell orders by means of two daily auction periods or “fixings”, at 12 hrs and at 16 hrs. Stratelis Advisors is acting as registered adviser and MG Valores SV as liquidity provider. - Moody's: Al Khalij Commercial Bank (al khaliji) Q.S.C.'s asset quality and capital strengths moderated by high reliance on market funding. Al Khalij Commercial Bank (al khaliji) Q.S.C. (AKB) benefits from a solid overall financial profile which is moderated by high reliance on market funding and concentration risks, says Moody's Investors Service in the report "Al Khalij Commercial Bank (al khaliji) Q.S.C: asset quality and capital strengths are moderated by high reliance on market funding" - While German SME’s continue to be plagued by recruiting problems, according to a new KfW survey fewer are bothered about filling employment vacancies than they were back in 2010. More women and older people in the working population, increasing labour mobility and the rise in skilled labour from other EU countries is helping filling the employment gap. Even so, the survey suggests that over the longer term, skilled labour shortages could be the order of the day – In a filing with the Luxembourg Stock Exchange Bank Nederlandse Gemeenten has given notice of amended final terms to the holders of TRY77.5m notes at 10.01% due June 17th 2025 (ISIN Code: XS1247665836 and Series no. 1214) issued under the bank’s €80bn debt issuance programme. The amendment includes provision that the issuer may settlement any payment due in respect of the notes in a currency other than that specified on the due date subject to pre-agreed conditions. Deutsche Bank London is the issuing and paying agent, while Deutsche Bank Luxembourg is listing agent, paying agent and transfer agent. The Shanghai Composite Index ended down 8.5% at 3725.56, its second-straight day of losses and worst daily percentage fall since February 27th, 2007. China's main index is up 6% from its recent low on July 8, but still off 28% from its high in June. The smaller Shenzhen Composite fell 7% to 2160.09 and the small-cap ChiNext Closed 7.4%. Lower at 2683.45. The drop comes as investors wonder how long the government’s buying of blue chip stocks can last. Clearly, the government can’t be seen to be pouring good money after bad to prop up what looks to be a failed strategy of propping up the market. Disappointing corporate earnings data across the globe has affected Asia’s main indices in today’s trading. The Hang Seng Index fell 2.7%. Australia's S&PASX 200 was down 0.2%, the Nikkei Stock Average fell 1% and South Korea's Kospi was off 0.4%. Turnover also remains depressed on Chinese exchanges, with around RMB1.2trn the average volume traded, compared to more than RMB2trn before this current downturn – In other news from the Asia Pacific, New Zealand’s Financial Markets Authority (FMA) has issued a Stop Order against Green Gardens Finance Trust Limited (GGFT) and warns the public to be wary of doing business or depositing money with this company. The Stop Order prohibits GGFT from offering, issuing, accepting applications for or advertising debt securities and/or accepting further contributions, investments or deposits for debt securities – Meantime, in Australia, the Federal Court has found that Astra Resources PLC (Astra Resources) and its subsidiary, Astra Consolidated Nominees Pty Ltd (Astra Nominees), breached the fundraising provisions of the Corporations Act, as part of civil proceedings brought by ASIC. In his judgment, Justice White upheld ASIC's claims that Astra Resources and Astra Nominees breached the Corporations Act by raising funds from investors without a prospectus or similar disclosure document, as required under the law.

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High yield market: Finding fixed-income firepower

Wednesday, 25 July 2012
High yield market: Finding fixed-income firepower With Fed liquidity helping to drive rates in competing asset classes lower, fixed-income mavens have been understandably buoyed by the comparatively attractive risk-adjusted returns of high-yield corporate bonds. Despite consistently strong credit fundamentals, however, the persistence of worrisome global-macro volatility will likely keep high-yield investors on alert throughout the second half of the year. From Boston, Dave Simons reports. http://www.ftseglobalmarkets.com/

With Fed liquidity helping to drive rates in competing asset classes lower, fixed-income mavens have been understandably buoyed by the comparatively attractive risk-adjusted returns of high-yield corporate bonds. Despite consistently strong credit fundamentals, however, the persistence of worrisome global-macro volatility will likely keep high-yield investors on alert throughout the second half of the year. From Boston, Dave Simons reports.

While many segments of the bond market have struggled in the face of plum­met­ing interest rates, one area that has been increasingly attractive to income investors has been high yield. Unlike 2011 which saw long-term treasuries outperform US corporate high yield by a six-to-one margin (according to figures from Barclays Capital), the global high-yield market began the current year in top form, with portions of the sector topping 8% as of late May.

With corporations de-leveraging and balance sheets improving, high-yield fundamentals appear to be sound (and include a record low default rate), while new issuance has been largely limited to extending maturities and boosting liquidity.



Though price action is typically impacted by global-macro volatility concerns (particularly with respect to the situation in Europe), the sector’s aggregate yield has advanced approximately 100 basis points since the start of the year, which could help attract even more investors going forward. Accordingly, many observers remain unusually bullish toward high yield corporate bonds and their attractive risk-adjusted returns, and believe these investments will be aided by the central-banking pro-growth monetary policy of the US and EU.

David Leduc Standish Mellon Asset ManagementDavid Leduc, chief investment officer of Standish Mellon Asset Management’s active fixed income division.Credit fundamentals remain reasonably healthy across most sectors, particularly within the US and developed areas, affirms David Leduc, chief investment officer of Standish Mellon Asset Management’s active fixed income division. “We have been a bit lighter on energy given the recent fluctuation in oil prices and other concerns,” says Leduc, “however on balance we’ve liked what we’ve seen.” Earnings have been strong, says Leduc, and the vast majority of companies have been able to secure financing at historically favorable terms, giving them greater flexibility.

As one would expect, the top end of the yield curve has been shaped for the most part by lower-rated issues, with some CCC-rated products approaching the 10% mark. Emerging-markets high yield has garnered significant interest, while European high yield continues to lead the pack on a global basis. “Euro spreads have been consistently higher,” says Leduc, “which helped the sector outperform during the first part of the year.” Navigating the financial space has been tricky, though, says Leduc. “There have been a lot of fallen angels particularly around European bank sub-debt, and we’ve tended to steer clear as a result.” Attractive opportunities in the US include various issues in the lease-finance sector; communications has had its share of good performers, and Standish Mellon has also benefited from positions in the US auto sector, particularly in light of recent upgrades.

Even those with a reduced appetite for risk have seen returns in the vicinity of 4% or higher from certain higher-rated (BB and B) issues. “Some of the smaller names in Latin America and Asia have paid upwards of 60 basis points (bps) higher than their US counterparts, simply because they may have better credit metrics including lower leverage and higher interest coverage,” says Leduc. “While it might not sound like that big a deal, when you have 10-year treasury bonds yielding less than two percent, it does mean something.”

Brian Kinney State StreetBrian Kinney, managing director at State Street Global Advisors (SSgA).The perception that the Fed will keep rates at low, combined with the positive direction of corporate balance sheets, has helped boost comfort levels, says Brian Kinney, managing director at State Street Global Advisors (SSgA). As such, investors are increasingly viewing high yield as a plausible mechanism with which to diversify away from lower-paying government bonds, or to use high yield in part as a hedge against inflation.

“Not only are clients moving into these types of asset classes in greater numbers, they are doing so in a way that they feel will provide them with the most liquidity,” says Kinney. Given the illiquidity licking that many an investor suffered pre-crisis, it’s not that surprising that the vehicle of choice for high-yield entry has often been exchange-traded funds. During the first quarter alone, roughly 25% to 30% of total high-yield inflows arrived via ETFs, with the majority directed toward State Street’s SPDR Barclays Capital High Yield Bond ETF as well as iShares’ iBoxx $ High Yield Corporate Bond ETF (the two funds currently account for an estimated $25bn combined).

Because high-yield ETFs tend to invest in a smaller number of larger, more liquid issuers, there is a bit of a trade-off between liquidity and broad exposure when compared to institutional fixed-income high-yield benchmarks. It’s a sacrifice that many clients have been willing to make, says Kinney. “If you look at the performance of high-yield managers versus the index, on balance the returns haven’t been all that different,” says Kinney. ­“Particularly when you consider the importance of liquidity to investors nowadays, you can see why ETFs have become a legitimate choice for clients in support of high yield.”

Despite the upward trend, managers have been loath to keep the pedal to the medal, given the perpetual ebbs and flows of economic developments both at home and abroad. In contrast to the buoyant first quarter that saw major fund flows into high yield, the economic realities of Q2 subsequently sucked some of the joy back out of the markets; though still north of 5% on an aggregate basis (as of June 30th), corporate high-yield indices have since retraced much of the gains tacked on earlier in the year.

“There could still be a fair amount of volatility into the foreseeable future,” says Leduc, “which is important to keep in mind, particularly when using high yield in accounts that may not be totally dedicated to that asset class. Things have clearly gotten a bit softer in the US during the second quarter, which isn’t all that surprising given the higher-than-average performance we saw during the previous quarter, nevertheless it does bear watching. But there are other things to look out for as well—China’s growth has been slower than the markets had previously expected, and of course Europe continues to struggle with the sovereign-debt problem. So global-growth concerns do remain at the forefront, and even though it’s not our view, should there be a more meaningful pullback in the US economy, that would certainly not be constructive for high yield. While we’re not necessarily building those expectations into our high-yield strategy, it is something we need to be cognisant of as we move forward.”

Still, experts such as Kinney prefer to look at the bigger picture. “The fundamentals story, which is about corporations’ balance sheets, cash on hand, and access to the capital markets is still quite positive,” says Kinney. “If you forget about the spreads and just focus on the absolute yields, you see that corporations are in better shape than they’ve been in years. You also have a very strong technical story in the sense that there is a lot of liquidity in the system right now—and the indirect result of the Fed putting all of this money into the system is that absolute yields in other asset classes have been driven very low. So as a relative-value proposition high yield looks very attractive, particularly in a market that is awash in liquidity and other yields are at their historical lows.”

Despite some suggestions that government regulation has lead to greater inefficiency and the potential for market dislocations, the improved transparency has allowed investors to breathe a bit easier whilst on the high-yield hunt.

“Say what you want about regulation—the fact of the matter is that investors have been able to look at corporate balance sheets and have a much better understanding of what’s actually behind them,” says Kinney. “The ability to analyse and subsequently invest in corporations is probably better than it’s ever been, and that is certainly one of the more positive aspects of the increased disclosure around what corporations are doing with their money. And the high-yield market has really been one of the key beneficiaries of that trend.”

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