• RankiaPro Spain
Menu
  • RankiaPro Spain
SUBSCRIBE
Search
Close
  • Home
  • Insights
    EQUITIES
    EQUITIES
    FIXED INCOME
    FIXED INCOME
    ESG
    ESG
    INTERVIEWS
    INTERVIEWS
    MARKET OUTLOOK
    MARKET OUTLOOK
    ETF
    ETF

    Featured

    rankiapro-acontecimientos-podrian-marcar-mercados-verano
    Insights

    What events could mark the markets this summer?

  • News
    APPOINTMENTS
    APPOINTMENTS
    LAUNCHES
    LAUNCHES
    ASSET MANAGERS
    ASSET MANAGERS

    FEATURED

    COVER IMAGE WEB POSTS (5)
    Appointments

    DWS: Sebastian Krämer-Bach to take over Communications & Marketing from Adib Sisani

  • Magazine
    RANKIAPRO EUROPE
    RANKIAPRO EUROPE
    RANKIAPRO IBERIA
    RANKIAPRO IBERIA
  • Events
    RANKIA FUNDS EXPERIENCE
    CONFERENCE CALLS
    CONFERENCE CALLS
    RANKIAPRO MEETINGS
    RANKIAPRO MEETINGS
  • Podcast
  • MiFIDII Training
Menu
  • Home
  • Insights
    EQUITIES
    EQUITIES
    FIXED INCOME
    FIXED INCOME
    ESG
    ESG
    INTERVIEWS
    INTERVIEWS
    MARKET OUTLOOK
    MARKET OUTLOOK
    ETF
    ETF

    Featured

    rankiapro-acontecimientos-podrian-marcar-mercados-verano
    Insights

    What events could mark the markets this summer?

  • News
    APPOINTMENTS
    APPOINTMENTS
    LAUNCHES
    LAUNCHES
    ASSET MANAGERS
    ASSET MANAGERS

    FEATURED

    COVER IMAGE WEB POSTS (5)
    Appointments

    DWS: Sebastian Krämer-Bach to take over Communications & Marketing from Adib Sisani

  • Magazine
    RANKIAPRO EUROPE
    RANKIAPRO EUROPE
    RANKIAPRO IBERIA
    RANKIAPRO IBERIA
  • Events
    RANKIA FUNDS EXPERIENCE
    CONFERENCE CALLS
    CONFERENCE CALLS
    RANKIAPRO MEETINGS
    RANKIAPRO MEETINGS
  • Podcast
  • MiFIDII Training
Search
Close
Search
Close

Home | Tilt towards quality credit!

Tilt towards quality credit!

Regina Borromeo, portfolio manager in the Global Macro at Robeco shares her team allocation to credits under the current circumstances. Borromeo rules out a global recession but doesn´t discard a US recession and advises for a flight to quality.
Regina Borromeo

Portfolio Manager, Global Macro

  • 13 March 2020

Regina Borromeo, portfolio manager in the Global Macro at Robeco shares her team allocation to credits under the current circumstances. Borromeo rules out a global recession but doesn´t discard a US recession and advises for a flight to quality.

In the context of a synchronized slowdown in global growth and the rise of geopolitical risks, the major central banks are engaged in easing programs that are disjointed. This has created an increasingly uncertain outlook for asset prices, including in the global credit markets. The divergent risk environment is already being reflected in the large differential in performance this year of lower-quality US high yield spreads, US levered loans and even in emerging markets sovereign assets in hard currency.

Considering these uncertainties into 2020, we analyzed global spread markets in order to outline scenarios and to evaluate probability-weighted outcomes. The main purpose of this exercise was to gauge what scenarios markets are pricing in and to have an educated discussion about assumptions and probabilities.

A base-case scenario that is positive for credits

Based on observations from our scenario analysis of global spread markets, our base case is that we will stay in a low-growth and low-inflation environment. The second most likely scenario is that of a technical US recession. Our analysis shows that different spread markets currently are pricing in a 20-25% probability of a recession. The least likely scenario is one in which growth recovers and inflation rises meaningfully.

In general, for credit investors, the two scenarios that can be considered positive are inflation and growth moving back to trend levels, and our base-case scenario of low growth and low inflation, in which a recession is avoided and monetary policy stays extremely accommodative.

A scenario in which growth and inflation are above trend is slightly positive for spreads, since there is still compression potential. Nevertheless, it carries the risk of global monetary policy turning less accommodative again.

US recession would result in spread widening

If we assume that probabilities are weighted towards a recession in the US, and in particular to a replay of a recession such as we saw in 2000-2001, our view is that spreads in all credit sectors on a probability-weighted basis ought to be wider than current levels. More specifically, we expect that euro- and US dollar-denominated investment grade credit would experience the least widening in spreads, while US high yield, euro high yield bonds and the CDS High Yield indices would be the worst off.

Our analysis did not include a crisis scenario such as the Global Financial Crisis. Given the concerns over the buildup of non-financial corporate debt in the US, we deem the late 1990s to be a stronger parallel to the current environment than the conditions that prevailed in 2008. Furthermore, with the ECB purchasing non-financial corporate bonds as part of the QE program again, the positive technicals of the program and secondary effects in euro spread across the rating spectrum should help decrease the downside technical risks for euro spread markets compared to their US dollar counterparts.

A focus on quality

These probability-weighted scenarios are confirmation of our preference to be focused on quality in credit markets, to be selective about exposure to idiosyncratic risks in high yield, and to maintain credit betas at market-neutral levels.

This view is consistent with the conclusions from our Credit Quarterly Outlook and our Fixed Income Outlook. We discussed in those publications the importance of quality and sector rotation, along with safe-haven positioning in the later stages of the extended credit cycle. This is especially applicable after a so-called ‘sugar rush’ and given warning signs of excesses in the global leverage finance markets.

Considering the relatively short spread history in certain spread markets, there is some subjectivity in our calculations. Another caveat in our analysis is that, given that there is little historical precedent for the current low or negative yield environment, we may now be underpricing the spread market premium for anything with carry or positive yield.

Given our estimated probabilities and the continued uncertainties, our preference is to maintain an emphasis on quality spread assets with higher Sortino ratios1 in our global macro strategies. Our exposure to credit and emerging markets has become more selective, and we prefer an overall market-neutral stance. This analysis also confirms the divergence in performance in lower-quality, below investment grade spreads and emerging market spreads, and we believe this divergence theme will continue into the new year. For now, quality reigns.

  • Fixed Income

Related Post

Outside liontrust
  • Appointments, News

Sharmin Rahman and Emma Veitch to join the Global Fixed Income team at Liontrust

They will join the team to work with the Co-Heads Phil Milburn and Donald Phillips.
rankiapro-elevada-inflacion-es-mala-para-bonos
  • Fixed Income, Insights, Market Outlook

Isn’t high inflation bad for bonds?

Commentary by Paul Grainger, head of Global Fixed Income and Currencies at Schroders, on inflation and its influence on bonds.
rankiapro-blackrock-preve-activos-etf-bonos-globales-alcancen-5-billones-dolares-2030
  • ETF, Fixed Income, Insights

BlackRock Projects Global Bond ETF Assets to Reach $5 Trillion by 2030

Over the past two years more wealth managers have put bond ETFs at the center of their portfolios and institutional adoption of bond ETFs has broadened and deepened.
NEWSLETTER
If you want to keep up to date with the latest news from the asset management industry and all our events, subscribe now to our newsletter.
Subscribe

Last Tweets

14h

💼 Alex Bibani joins @AllianzGI_view Thematic Equity team

🔗 #Appointment #RankiaProEurope

...https://en.rankiapro.com/alex-bibani-joins-allianzgis-thematic-equity-team/

17h

📰China and its policy responses to ensure a recovery in the second half of the year

🔗 #China #Recovery
...#RankiaProEurope

https://en.rankiapro.com/china-policy-responses-ensure-recovery-second-half-year/

19h

💻 Central bank policy has catalysed a valuation opportunity in the software space @WisdomTreeETFs

🔗 #Tech
...#RankiaProEurope

https://en.rankiapro.com/central-bank-policy-has-catalysed-valuation-opportunity-software-space/

20h

📰 Inflation is complicated @PIMCO

🔗 #Inflation #Markets #RankiaProEurope

...https://en.rankiapro.com/inflation-is-complicated/

RankiaPro

  • Home
  • Insights
  • News
  • Magazine
  • Events
  • About us
Menu
  • Home
  • Insights
  • News
  • Magazine
  • Events
  • About us

Terms and uses

  • Cookies Policy
  • Privacy Policy
  • Disclaimer
Menu
  • Cookies Policy
  • Privacy Policy
  • Disclaimer

Contact

  • Email: [email protected]
  • Phone: (+34) 963 386 976
  • Mobile: (+34) 640 308 023

Newsletter

If you want to keep up to date with the latest news from the asset management industry and all our events, subscribe now.

Subscribe

All rights reserved © 2003 – 2021 Rankia S.L.

RankiaPro

  • Home
  • Insights
  • News
  • Magazine
  • Events
  • About us
Menu
  • Home
  • Insights
  • News
  • Magazine
  • Events
  • About us

Terms and uses

  • Cookies Policy
  • Privacy Policy
  • Disclaimer
Menu
  • Cookies Policy
  • Privacy Policy
  • Disclaimer

Contact

  • Email: [email protected]
  • Phone: 963 386 976 – 601 302 692

All rights reserved © 2003 – 2021 Rankia S.L.

Manage Cookie Consent
To provide you the best experience on our website, we use technologies like our own and third-party cookies for analytical purposes and to store device information. Consenting to these technologies will allow us to process data such as browsing behaviour or unique identifiers on this site. Not consenting or withdrawing consent may adversely affect certain features and functions.

To learn more, please read our Cookie Policy and Privacy Statement.
Functionality or Personalisation Cookies Always active
These cookies are necessary for the website to function or for the unique purpose of transmitting a communication over an electronic communications network, and cannot be disabled on our systems. Usually they are set up to respond to actions made by you to receive services, such as adjusting your privacy preferences or filling out forms. You can set your browser to block or alert you to the presence of these cookies, but some parts of the website will not work. These cookies allow the website to provide better functionality and personalisation. They may be set by us or by third parties whose services we have added to our pages. If you do not allow these cookies some of our services will not work properly.
Preferences
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics Cookies
These cookies allow us to count traffic sources in order to measure and improve the performance of our website. Storage or technical access which is used exclusively for statistical purposes. The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing Cookies
These cookies may be site-wide, placed by our advertising partners. These third parties may use them to create a profile of your interests and show you relevant adverts on other sites. If you do not allow these cookies, you may receive less targeted advertising.
Manage options Manage services Manage vendors Read more about these purposes
Cookie Settings
{title} {title} {title}
  • RankiaPro Spain
Menu
  • RankiaPro Spain
Menu
  • Home
  • Insights
    • Equities
    • ESG
    • ETF
    • Fixed Income
    • Interviews
    • Market Outlook
  • News
    • Appointments
    • Asset Managers
    • Launches
  • Magazine
    • RankiaPro Europe
    • RankiaPro Iberia
  • Events
    • Rankia Funds Experience
    • Online Events
    • RankiaPro Meetings
  • Podcast
  • MIFIDII Training

Follow us on social media

Linkedin Twitter Youtube Flickr

NEWSLETTER

Subscribe

Book now

Tilt towards quality credit!