“Surprise!” This word probably best describes the (wacky) world of global fixed-income markets over the past 12 months. From the near-shocking continued appreciation of long-term US Treasuries and German bunds; through the continued flood gate of new corporate issuance; past the level of risks investors seem willing to take on in order to harvest precious basis points of yield; to the resurgence of emerging markets; 2014 has not obeyed the conventional wisdom of late 2013.
About the only thing that remains true is the scrutiny and criticism of global central bank policy. Sans this, the fixed-income axis of monetary policy, all else seems to be a study in punchlines delivered at the expense of fixed-income investors.
Here are some key stories that describe the big surprises of 2014 thus far:
Monetary Policy
- "Central Bankers Face 'Confidence Bubble'" (Financial Times)
- "Subzero Eurozone Yields Point to ECB Power, Problems" (Wall Street Journal)
Surging Corporate Issuance
- "Firms Near Borrowing Record" (Wall Street Journal)
- "Low Rates Spur US Corporate Debt Sales" (Financial Times)
Emerging Markets
- "Indonesia Plans Euro, Yen Bond Sales to Meet Record Target" (Bloomberg)
- "South Africa to Issue Maiden Sukuk" (Financial Times)
High Yield
- "Big Investors Snap Up Junk Bonds" (Wall Street Journal)
- "Yield Chasers Cross the Beta Desert at Their Peril" (Financial Times)
Securitization
- "Déjà Vu: Echoes of Pre-Crisis World Mount" (Financial Times)
- "Draghi ABS Revival Depends on Regulators Defining Simple" (Bloomberg)
- "SEC Approves Rules Aimed at Hidden Risks of Asset-Backed Securities" (Wall Street Journal)
Still unresolved in the aftermath of the global financial crisis is the viability of alternatives to credit ratings. That said, Kroll is making a compelling case for being named the ‘alternative’ to the Big Three credit ratings agencies. For more discussion of fixed-income markets and their ongoing issues, you can attend the 2014 CFA Institute Fixed-Income Management Conference in Huntington Beach, California. Among the many questions to be answered at the event are:
- How will Federal Reserve tapering affect interest rates and emerging markets?
- Will China be able to deflate its credit bubble without severe economic disruption?
- Will weak demand and persistent unemployment in debt-burdened industrialized nations improve the outlook for bonds?
Helping to answer these questions are your host, GMO’s Marc P. Seidner; the always intelligent and funny, James Grant; the trenchant and quant with an eye for the art of investing, Robert Arnott; the newsworthy, Mohammed A. El Erian; and the boundary-exploring, Roberto Rigobon. Additionally, our audience polls will give real-time insight into what fellow investment professionals are thinking about important issues.
Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.
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