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Global HY markets sold off aggressively between February and March in response to the COVID-19 outbreak, the oil price war and the liquidity freeze in some markets. An analysis of past peak-and-trough episodes in the US HY market shows that on most occasions investors have enjoyed positive market returns just one year after the peak. Three years past such a peak, market returns have proven positive in all six occurrences since 2000.
Kenneth J. MONAGHAN, Andrew FELTUS, Matt SHULKIN, Sergio BERTONCINI, Marina COHEN, Colm D’ROSARIO
Coordinated actions by central banks and governments have a clear objective to prevent a sharp rise in bankruptcies. We are confident in central banks’ ability to address the liquidity crisis as central banks have entered a new regime: unlimited support. However, we have no strong convictions on the depth of the coming solvability crisis.
Deputy Head of Developed Market Strategy Research
The Eurozone’s architecture does not allow it to contain all the risks arising from the current shock. Recourse to an European Stability Mechanism (ESM) credit line without strong conditionality is a de facto first step towards debt mutualisation. Looking ahead, this could pave the way to a European budget and a common debt.
Didier BOROWSKI, Pierre BLANCHET
From unemployment and inflation to climate change and social inequality, central banks (CB) are on the frontlines. In the context of the ECB’s and the Federal Reserve’s strategic reviews there are now open debates about their new tools, targets and mandates. But a more profound change in central banks’ behaviour should also be discussed, regarding recession aversion, fiscal dependence and markets interaction.
Didier BOROWSKI, Pierre BLANCHET, Annalisa USARDI, Valentine AINOUZ
Last year was a strong year for global bond markets, which were supported by the accommodative stance of the main central banks and strong investor demand. US, European and EM high yield (HY) bonds all returned more than 14% swapped into US dollars. The performance was led by the higher-quality segments of the market, such as BB-rated bonds, as well as the strong performance of CCC bonds in Europe. This was due to the search for yield across credit products, helped by positive risk sentiment.
Kenneth J. MONAGHAN, Andrew FELTUS, Matt SHULKIN, Marina COHEN, Sergio BERTONCINI
Patrick BOLTON, Morgan DESPRES, Luiz Awazu PEREIRA DA SILVA , Frédéric SAMAMA, Romain SVARTZMAN