PA ANALYSIS: Fiscal fears stoke bond bull capitulation calls

Added 24th October 2016

The death of the 30-year bond bull market that has formed the backdrop for most City careers has been predicted many times. It has yet to come to pass. But, if one were looking for signs that it is reaching an inflection point, the last seven days has proved a fertile hunting ground.

PA ANALYSIS: Fiscal fears stoke bond bull capitulation calls

The most recent was the launch on Monday of a US corporate debt fund by JP Morgan.

Given the ubiquity of such products and the fact that in this instance the new product is an extension of an existing SICAV range, the launch of a new US corporate bond fund does not generally merit significant comment, but the rationale provided by the firm for the fund serves to highlight the ongoing shift being seen within credit markets.

According to the press release, the decision to launch the fund comes on the back of the massive QE programmes that have characterised developed market central bank policy since the financial crisis and that have pushed nearly one in three government bonds to a negative yield.

Not only does the US corporate credit market look attractive on a relative basis to European investors as a result of these changes, the firm said but also, according to co-manager of the fund and global head of investment grade credit, Lisa Coleman: “The sheer amount of low and negative-yielding government bonds is increasingly pushing investors into corporate debt as they seek positive returns."

"Simultaneously, the significant incremental purchasing activity by central banks is underpinning valuations of higher quality credit. Those strong technical factors will remain meaningful tailwinds for the performance of investment grade credit.”

Portfolio Adviser has already spoken about the increasing focus fixed income managers are placing on capital gain, rather than yield. This launch seems to be an extension of that. It is a product predicated on relative value. And, while the rationale for the fund in the short term makes sense, it has a feel of a last hurrah about it; like trying to squeeze the very last bit of value out of the move. 

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Geoff Candy

Group digital editor

Geoff Candy joined Portfolio Adviser as News Editor in May 2014. He has been a financial journalist and broadcaster since 2005 and, in that time has worked in both South Africa and the Netherlands, covering everything from high street retailers and construction companies to mining and insurance.

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