For financial professionals in Italy

Credit spreads — from reassuringly expensive to scary cheap, and now: just cheap?

John Pattullo, Co-Head of Strategic Fixed Income, believes that over the last month corporate bond spreads have gone from scary cheap to just ‘kind of cheap’ now. As the dust settles in the markets, he remains optimistic that there are opportunities to be had going forwards.

 Key takeaways:

  • Both investment grade and high yield bond spreads have climbed down from their extreme levels just over a month ago. While they were at scarily cheap levels then, they are now perhaps ‘just cheap’.
  • The impressive support from the US and UK governments, helping to create bridge-financing for businesses and individuals, has brought some stabilisation to the markets. In particular, the US Federal Reserve (Fed)’s efforts have been very encouraging for investment grade and high yield corporate bonds.
  • Last week saw inflows back into the equity and bond funds. There were many refinancings — rescue finance in effect — in the US high yield markets by well-known entities. We believe that good businesses will continue to attract capital, while those in structural decline will find it much harder.

 

Note:
The indices whose yield and spreads were mentioned by John Pattullo are ICE Bank of America US investment grade and high yield bond indices, on the day of recording, 22 April 2020.

Past performance is not a guide to future performance.

John Pattullo

John Pattullo

Co-Head of Strategic Fixed Income | Portfolio Manager


23 Apr 2020
6 minute watch

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.

 

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

The information in this article does not qualify as an investment recommendation.

 

Marketing Communication.

 

Glossary

 

 

 

Important information

Please read the following important information regarding funds related to this article.

The Janus Henderson Horizon Fund (the “Fund”) is a Luxembourg SICAV incorporated on 30 May 1985, managed by Janus Henderson Investors Europe S.A. Janus Henderson Investors Europe S.A. may decide to terminate the marketing arrangements of this Collective Investment Scheme in accordance with the appropriate regulation. This is a marketing communication. Please refer to the prospectus of the UCITS and to the KIID before making any final investment decisions.
    Specific risks
  • An issuer of a bond (or money market instrument) may become unable or unwilling to pay interest or repay capital to the Fund. If this happens or the market perceives this may happen, the value of the bond will fall.
  • When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise. This risk is generally greater the longer the maturity of a bond investment.
  • The Fund invests in high yield (non-investment grade) bonds and while these generally offer higher rates of interest than investment grade bonds, they are more speculative and more sensitive to adverse changes in market conditions.
  • Callable debt securities, such as some asset-backed or mortgage-backed securities (ABS/MBS), give issuers the right to repay capital before the maturity date or to extend the maturity. Issuers may exercise these rights when favourable to them and as a result the value of the fund may be impacted.
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  • The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.
  • In addition to income, this share class may distribute realised and unrealised capital gains and original capital invested. Fees, charges and expenses are also deducted from capital. Both factors may result in capital erosion and reduced potential for capital growth. Investors should also note that distributions of this nature may be treated (and taxable) as income depending on local tax legislation.
John Pattullo

John Pattullo

Co-Head of Strategic Fixed Income | Portfolio Manager


23 Apr 2020
6 minute watch