Bond life

From his kitchen table our head of fixed income Bryn Jones gives his perspective on the bond life, where emergency stimulus has brought signs of life, but credit remains in a critical condition.

Kitchen worktop with laptop

Firstly, I hope you and yours are staying healthy during this tough time.

What a couple of weeks! I am fully operational in my kitchen. I have my Bloomberg, emails and order-management system on my laptop, which is positioned on top of my favourite board game.

My day starts at 6am when I write the company bonds comment. Think more Daily Mail than Economist – our asset allocation gang led by Ed Smith put out higher-quality pieces on par with the latter. At 8am there’s an executive call, at 9am a fixed income team call and then it's time to get down to the day job, looking at trades, reading research, answering a higher-than-normal volume of client calls and queries – only natural in times of stress – and...deleting emails.

The coffee machine is of great importance. The queues for this are quite small which means extra work time. I buy ethically sourced coffee from small producers via my long-term supplier, Pact Coffee. The commute is also quick...there are no queues on the stairs, or daggers glaring at me as I try to get the table seat. I’m saving on travel costs and my carbon footprint has fallen – especially as I buy 100% renewable energy from Bulb.

Who needs offices in the future? We all seem to be functioning well from home.

Two weeks ago we moved to split site. That meant most people working from home with just a couple of people in the office. When it became clear the London office would close, I drove into town and raised more cash as it was unclear how the market would function in lockdown. To be fair, it's functioning really well.

Stability returned last week. The central bank bazookas and government fiscal taps finally culminated in the Fed delivering unlimited quantitative easing, buying trillions of dollars’ worth of Treasuries, commercial paper, mortgage-backed securities, exchange-traded funds, and corporate and financial bonds in an alphabet soup of stimulus. This led to a rebound in credit. The first trade I made from my kitchen last Monday, Phoenix RT1, we sold on Friday making 52%! But there are still many areas of concern.

Will we need offices in future? Companies could save millions...but here’s the rub... real estate investment trusts (REIT) and commercial mortgage-backed securities (CMBS) may struggle. There are over $3 trillion of CMBS already reeling from the Amazon they’re also reeling from the impact of coronavirus on office demand.

The high-yield market is another area of concern. There’s been around $80 billion of fallen angels already this year – that’s when an investment-grade bond gets downgraded – and some analysts estimate this could rise to over $200bn, surpassing 2005's $100bn. The good news here is that US high yields are trading dirt cheap at 11-year lows. Historically, if you buy when spreads are this wide you tend to make money. (Spreads widen when sovereign bonds are favoured over corporates, which typically happens in periods of economic uncertainty.)

Although as we know, history is not always the best guide to the future... Credit markets are unsure who will and who won’t survive, who is going to get grants and loans and who is not… That’s my biggest concern. Marks and Spencer and Ford have already been junked.

Emerging market debt is also looking cheap. But, I’m not sure their health systems are prepared for a pandemic. With this in mind we’ve bought two AAA supranational COVID-19 response bonds: African Development bank, and Inter-American Development bank to help Latin America.

Enough from me...time for my daily jog around the block. Down time is important too.

Important legal information

This area of the site is for professional advisers

Please read this page before proceeding, it explains certain legal and regulatory restrictions applicable to the distribution of this information. It is your responsibility to inform yourselves of and to observe all applicable laws and regulations of the relevant jurisdiction.

This section of the website is directed only at investment advisers and other financial intermediaries who are authorised and regulated by the Financial Conduct Authority (FCA).

The information provided in this site is directed at UK investment advisers only and must not be circulated to private clients or to the general public. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

I confirm that I am an investment intermediary authorised and regulated by the Financial Conduct Authority. I have read and understood the legal information and risk warnings below:

Important Information (Terms and Conditions)

The information contained on this site is believed to be accurate at the date of publication but no warranty of accuracy is given and the information is subject to change without notice. Any opinions or estimates included herein constitute a judgement as of the date of publication and are subject to change without notice. Furthermore, no responsibility is accepted for the accuracy of any information contained within sites provided by third parties that may have links to or from our pages.

Rathbone Investment Management Limited ("RIM") is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered Office: Port of Liverpool Building, Pier Head, Liverpool L3 1NW. Registered in England No 01448919.

In accordance with regulations, all electronic communications and telephone calls between Rathbones and its clients are recorded and stored for a minimum period of six months.

The information provided in this site is directed at UK investors only. It does not constitute an offer to sell, or solicit an offer to purchase any investments by anyone in any jurisdiction in which such offer or solicitation is not authorised or in which a member of the Rathbone Group is not authorised to do so.

In particular, the information herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in France and the United States of America to or for the benefit of United States persons (being resident in the United States of America or partnerships or corporations organised under the laws of the United States of America or any state, territory or possession thereof).

In order to comply with money laundering and other regulations, additional documentation for identification purposes may be required.

Rathbones shall have no liability for any data transmission errors such as data loss, damage or alteration of any kind including, but not limited to, any direct, indirect or consequential damage arising out of the use of services provided or referred to in this website.

Past performance should not be seen as an indication of future performance.

The value of investments and the income from them can fall as well as rise and you may not get back the amount originally invested, particularly if your client does not continue with the investment over the longer term.

Changes in the rate of exchange between currencies may cause the value of an investment to go up or down.

Interest rate fluctuations are likely to affect the capital value of investments within bond funds. When long term interest rates rise the capital value of units is likely to fall and vice versa. The effect will be more apparent on funds that invest significantly in long dated securities. The value of capital and income will fluctuate as interest rates and credit ratings of the issuing companies change.

Tax levels and reliefs are those currently applicable and may change and the value of any tax advantage will depend on individual circumstances.

Investing in emerging markets or small companies may be potentially volatile, as these investments are high risk.

The design, text and images are owned, except as expressly stated by members of the Rathbone Group. They may not be copied, transmitted, displayed, performed, distributed, licensed, altered, framed, stored or otherwise used in whole or in part or in any manner without the written consent of Rathbones except to the extent permitted and under the procedures specified in the copyright Designs and Patents Act 1988, as amended and then only with notices of Rathbones' rights.

Rate this page:
Average: 4.7 (3 votes)

Subscribe to the In the KNOW blog email