Summary
ABSTRACT
Three main themes driving investing opportunities
Theme 1 - Central banks dovishness
- Low rates and accommodative central bank policies translate into lower funding costs and easier financial conditions for HY companies
- When the Fed and the markets get onto different pages volatility spikes
- The market may have gone too far in terms of rate cut expectations, but we expect the Fed to manage expectations
Theme 2 - Benign default outlook
- We expect the default outlook for the next quarters to remain stable towards year end and just slightly increasing in H1 2020
- Both in the US and in Europe the percentage of bonds trading at distress levels (more than 1,000bos spread) remains contained, with differences across sectors
Theme 3 - Diverging technical and fundamental dynamics
- Going global in HY allows to benefit from the favourable fundamental and technical backdrop for European HY and EM HY that also offer appealing spreads;
- Diverging technical and fundamental dynamics result in opportunities to actively select bonds in different regions and sectors
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