By David Riley, Partner, Chief Investment Strategist at BlueBay Asset Management

The exogenous shock to the global economy of the coronavirus pandemic is the catalyst for a violent and painful re-pricing of growth-sensitive risk assets.

Until the virus is brought under control and the path to recovery from recession is visible, it seems extreme volatility will continue to characterise financial markets and weigh on risky assets.

Extraordinary uncertainty, volatility and the dash for cash currently overwhelm valuations and fundamentals as the principal drivers of asset prices. Nonetheless, from a historical perspective, high yield credit spreads and bond prices are at levels that are typically associated with subsequent positive investment returns.

Governments and central banks are almost daily announcing further extraordinary policy interventions to limit the permanent economic damage from measures to contain COVID-19. If successful, the increase in corporate defaults will, in our opinion, be less than from prior recessions and the subsequent economic recovery and rebound in asset prices more rapid.

Our estimates suggest that credit spreads imply annual default rates of around 13% and 11% for US (ex-energy) and euro high yield bonds – broadly comparable to the peak annual default rates in the global financial crisis.

READ THE FULL ARTICLE HERE

 

 

This document is issued in the United Kingdom (UK) by BlueBay Asset Management LLP (BlueBay), which is authorised and regulated by the UK Financial Conduct Authority (FCA), registered with the US Securities and Exchange Commission, the US Commodity Futures Trading Commission (CFTC) and is a member of the National Futures Association (NFA). This document may also be issued in the United States by BlueBay Asset Management LLC which is registered with the SEC and the NFA. Past performance is not indicative of future results. Unless otherwise stated, all data has been sourced by BlueBay. To the best of BlueBay’s knowledge and belief this document is true and accurate at the date hereof. BlueBay makes no express or implied warranties or representations with respect to the information contained in this document and hereby expressly disclaim all warranties of accuracy, completeness or fitness for a particular purpose. This document is intended for “professional clients” and “eligible counterparties” (as defined by the FCA) only and should not be relied upon by any other category of customer. Except where agreed explicitly in writing, BlueBay does not provide investment or other advice and nothing in this document constitutes any advice, nor should be interpreted as such. No BlueBay Fund will be offered, except pursuant and subject to the offering memorandum and subscription materials (the “Offering Materials”). If there is an inconsistency between this document and the Offering Materials for the BlueBay Fund, the provisions in the Offering Materials shall prevail. You should read the Offering Materials carefully before investing in any BlueBay fund. This document does not constitute an offer to sell or the solicitation of an offer to purchase any security or investment product in any jurisdiction and is for information purposes only. No part of this document may be reproduced in any manner without the prior written permission of BlueBay Asset Management LLP. Copyright 2019 © BlueBay, the investment manager, advisor and global distributor of the BlueBay Funds, is a wholly-owned subsidiary of Royal Bank of Canada and the BlueBay Funds may be considered to be related and/or connected issuers to Royal Bank of Canada and its other affiliates. ® Registered trademark of Royal Bank of Canada. RBC Global Asset Management is a trademark of Royal Bank of Canada. BlueBay Asset Management LLP, registered office 77 Grosvenor Street, London W1K 3JR, partnership registered in England and Wales number OC370085. The term partner refers to a member of the LLP or a BlueBay employee with equivalent standing. Details of members of the BlueBay Group and further important terms which this message is subject to can be obtained at www.bluebay.com. All rights reserved.