Fixed Income: Coronavirus market volatility - performance update
Insights

Fixed Income: Coronavirus market volatility – performance update

Spreads are much wider and government bond yields are failing to respond to the developing crisis. Corporate and high yield spreads have now widened to such an extent that on a long-term basis both offer much more compelling value. Global IG is now around 1.5 standard deviations wide of the 20-year average, while European High Yield has risen by around 3% so far this year. This means market returns are pretty poor. Euro High Yield is down 13% while Global IG is off by more than 2% – the latter being “protected” by a longer duration and the fall in US Treasury yields.

Generally, our portfolios have been defensively positioned in terms of market risk and in sector and security choice. This means that for most funds we are ahead of the benchmark. The macro team were long duration going into the crisis, which has clearly been beneficial. Our Absolute Return funds, where we were once again defensively positioned, are off a little this year against cash benchmarks, but this must be considered in the context of the collapse in equity and other risk markets.

Liquidity is of course poor and reminds us of other crises. We note that EM and HY liquidity is very challenged, as is IG and even parts of the government bond market. Our suspicion is that investors are using this latter liquid area of the market to meet cash demands – hence the surprising performance seen recently.

The encouraging situation is that after being expensive at the start of the year, there has been significant value created at these wider spreads. As mentioned, IG and HY spreads are more than one standard deviation wide of the long run (including the global financial crisis) average. We conclude that much bad news is discounted in present levels. We also note the distress in passive funds with ETFs trading at material discounts to net asset value.

20 March 2020
David Oliphant
David Oliphant
Executive Director, Fixed Income
Share article
Share on twitter
Share on linkedin
Share on email
Key topics
Related topics
Share article
Share on twitter
Share on linkedin
Share on email
Key topics
Related topics

PDF

Fixed Income: Coronavirus market volatility – performance update

Important Information

The research and analysis included on this website has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed.

Related Insights

31 March 2021

David Dudding

Portfolio Manager, Global Equities

Fund manager interview: maintaining a global focus

With economies looking towards a post-Covid world and concerns around inflation growing, we talk to the manager of the Global Focus strategy about what 2021 might have in store
Read time - 5 min
29 March 2021

Fixed Income Desk

In Credit - Weekly Snapshot

In Credit Weekly Snapshot - March 2021

Our fixed income team provide their weekly snapshot of market events.
Read time - 3 min
12 March 2021

Colin Moore

Global Chief Investment Officer

Relationships are not easy: US equities versus Treasuries

As the economy recovers and cyclical stocks begin to outperform, we look at the connection between equities and US Treasury yields.
Read time - 5 min

You may also like

Investment approach

Teamwork defines us and is fundamental to our investment approach, which is structured to facilitate the generation, assessment and implementation of good, strong investment ideas for our portfolios.

Funds and Prices

Columbia Threadneedle Investments has a comprehensive range of investment funds catering for a broad range of objectives.

Investment Capabilities

We offer a broad range of actively managed investment strategies and solutions covering global, regional and domestic markets and asset classes.