A year ago, investors were lamenting the fact that the rates of return on their bond holdings were far lower than they would desire. But the consensus view from those purporting to be in the know was that a normalisation was on the way as far as interest rates were concerned and that the buyside community would soon find yields at a level that might tempt them out from behind the sofa. Dissenters were certainly not to the fore.
Fast forward to the end of the first quarter of 2019, however, and early moves away from stimulative policies appear to have been something of a false dawn.
The rate-tightening cycle that that many had expected to be well under way by this stage had definitely not panned out as anticipated.
At the end of October/beginning of November last year, the yield on the 10-year US Treasury was approaching 3.25% on the way up. By the end of March, it had gone through 2.50% on the way down. Meanwhile, the 10-year German Bund disappeared into negative-yield territory for the first time since October 2016.
And glance to the east was never likely to fill investors with much hope, given that Japanese government bonds – rarely the source of untold riches as far as returns are concerned – were also in minus territory.
But there are two sides to every coin, and an environment where core sovereign paper is again proving prohibitively expensive for some accounts opens doors for those that can offer a little more.
Peripheral Europeans have been among some of those that have benefited most from investors once again having to seek out yield rather than it merely being on offer. Greece, Italy, Spain and Portugal all did deals in Q1, and all enjoyed healthy order books.
Government agencies and regional borrowers have also found an enthusiastic audience as a result of the additional bang investors can get for their buck. And borrowers and lenders alike have seized on this opportunity to further common causes, most notably, perhaps, in the SRI arena.
As ever, more esoteric fare held an attraction for those willing to do their homework. Naturally, there was rather more risk involved in this corner of the market, the usual geopolitical considerations being added to by new elements. Africa, for example, threw up a number of opportunities, although the unknown quantity of Chinese loan activity in various countries made calculations difficult.
But with rates in many core jurisdictions – not least the eurozone and US – set to remain lower for far longer than anticipated, investors are going to have to employ a level of ingenuity they perhaps hoped they could consign to history, at least for a while.
But things do not always turn out as predicted, and even the best laid plans on occasion require modification. Every situation presents its own opportunities, however, so it just remains for those on both sides of the buy/sell equation to establish what they are.
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