The coronavirus crisis continues to impact economies and markets but the liquidity crisis is seemingly beginning to heal. Jenna Barnard, Co-Head of Strategic Fixed Income, shares her views on the latest developments and explains why the team favour investment grade bonds now and how they are less bullish on government bonds going forward.

 Key takeaways:

  • Given the size, scale and breadth of asset class purchases that central banks have embarked on, markets are beginning to heal. Last week, the investment grade market reopened in style with many high quality, multinational corporates issuing new bonds, with new issue premiums of typically 50 to 70 basis points.
  • We are likely to see high default rates in sectors where there is very little equity value; zombie companies which have struggled in good times, such as energy, retail and some telecommunication companies in the US.
  • Post crisis, prospects for government bonds seem binary; either a Japanese playbook of anaesthetising the bond market via yield curve control, or an inflationary boom driven by the coordinated fiscal and monetary response that has been unleashed.