04 Mar 2022
Lewis Aubrey-Johnson, Head of Fixed Income Products
Glued to the news, the rest of Europe and the world watches in horror as the Russian invasion of Ukraine continues.
As the situation evolves, we break from our usual video schedule to bring you a special update from the Henley Fixed Interest Team.
In today’s video, Lewis Aubrey-Johnson discusses the impact the crisis is having on fixed income markets.
And all in under three minutes.
*FOMC: Federal Open Market Committee
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Transcript
Well, the news coming from the Ukraine at the moment is obviously pretty grim, but today I wanted to provide a brief update on the impact of that conflict on fixed income markets.
If we start with the government bond markets then, as you would have expected, we’ve seen yields declining across all of the major developed market bond curves.
10-year yields, for example, are down anywhere between 20-25 basis points.
What that also means is that the rate hiking cycle pricing has also changed.
A week or so ago, nearly 50 basis points of hiking was priced into the next FOMC meeting. As of today, the market is now expecting just one hike.
And, in general, across the different markets, we’ve had about a hike and a quarter, or a hike and a half, priced out of the rate hiking cycle. So definitely a shallower rate hiking cycle as a result.
In terms of credit markets, first of all in primary markets, it’s very quiet. The market is open only to the very highest quality issuers and probably only then at short maturities.
In terms of secondary markets, there is trading going through, but volumes are down by half on a normal week.
In terms of the spread impact, we’ve seen maybe 10-15 basis points of widening in investment grade markets. Maybe a little bit more in high yield: 40-50 basis points – something like that.
But we certainly have not seen forced selling or a disorderly market. I would say activity in general is pretty quiet.
From our team’s perspective, we thankfully came into this market with a relatively defensive strategy all round, and with good liquidity.
Investment risks
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Important information
Data is provided as of 2 March 2022, sourced from Invesco, unless otherwise stated.
This video is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only. It should not be relied upon as recommendations to buy or sell securities.
Where individuals or the business have expressed opinions, they are based on current market conditions. They may differ from those of other investment professionals. They are subject to change without notice and are not to be construed as investment advice.