Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
Head of Fixed Income Strategy
Investment-grade bonds are poised to benefit from a strong carry and the potential for tighter spreads. Although spreads have tightened from their peak, they remain appealing, particularly as the European Central Bank (ECB) prepares to cut rates. Currently, spreads hover around 110 basis points, which is still attractive compared to recent highs, and could tighten further.
Investors may continue to be drawn to the European investment-grade corporate space due to the attractive yields, which remain well above the 15-year average. Additionally, with expectations of a soft landing, the ECB may not cut rates as aggressively as the market anticipates. This could mean that the bond market narrative might echo that of 2022 and 2023, where building a buffer against elevated inflation proved to be a successful strategy. Investment-grade corporate bonds offer a yield premium over sovereign bonds while keeping investors insulated from the higher default risks associated with junk bonds.
Despite noticeable deterioration across the corporate bond spectrum compared to the pre-pandemic era, credit fundamentals in the investment-grade european space are proving resilient. Average corporate leverage, measured as debt over EBITDA, stands at 2.5x—higher than pre-pandemic levels but below the peak reached during Covid. Although average interest coverage dipped below 10x in the last quarter of 2023, there have been encouraging signs of recovery since then.
Credit upgrades (rising stars) are outpacing downgrades (fallen angels) by a substantial margin of 4 to 1, indicating strong overall quality in European investment-grade bonds. For context, the upgrade/downgrade ratio at the end of the last quarter of 2023 was much lower, around 1.36. As a result, default rates are expected to remain low, providing confidence to investors seeking solid returns in a more stable environment.
The multinational telecommunications company has a strong credit profile that may improve further due to several key factors:
The luxury car maker has a strong credit profile with potential for further improvement due to several key factors:
The British multinational tobacco company has a solid credit profile with potential for improvement due to the following factors:
The French energy company has a strong credit profile with potential for improvement due to the following factors:
28-Aug Insights into this week's US Treasury auctions: 2-, 5-, and 7-year overview.
22-Aug Wage Growth and Economic Resilience Challenge Market Expectations for Aggressive ECB Rate Cuts
20-Aug Understanding U.S. Treasury Auctions: What You Need to Know
19-Aug Insights into this week's US Treasury auctions: 20-year U.S. Treasury bonds and 30-year TIPS.
16-Aug No Signs of Imminent Recession: Why Bond Investors Should Approach Insurance Rate Cuts with Caution
14-Aug Markets Skeptical Despite Positive UK Inflation Report
09-Aug Yield Curve is Disinverting: Lessons from Past Crises
07-Aug Stable Bond Spreads and Robust Issuance Make a 50 bps Rate Cut in September Unlikely
06-Aug Insights into this week's US Treasury refunding: 3-, 10-, and 30-year overview.
05-Aug Why Investors Must Pay Attention: BOJ’s Hawkish Moves Could Roil Global Markets
30-July BOE Preview: Better Safe than Sorry
29-July FOMC Preview: A Data-Dependent and Balanced Approach
24-July Market Impact of Democratic vs. Republican Wins
23-July Insights into this week's US Treasury auctions: 2-, 5-, and 7-year overview.
16-July Insights into this week's US Treasury auctions: 20-year U.S. Treasury bonds and 10-year TIPS.
15-July ECB Preview: Conflicting Narratives – Rate Cuts vs. Data Dependency
15-July Understanding the "Trump Trade"
11- July Bond Update: Faster Disinflation Paves the Way for Imminent Rate Cuts, but Risks of Economic Reacceleration Remain
09-July Insights into This Week's U.S. Treasury Auctions: 3-, 10-, and 30-Year Tenor Overview and Market Dynamics.
08-July Surprise Shift in French Election Fails to Rattle Markets for Good Reasons.
04-July Market Optimism Ahead of French Elections Drives Strong Demand for Long-Term Bonds
01-July UK Election Uncertainty and Yield curve Dynamics: Why Short-Term Bonds Are the Better Bet
28-June Bond Market Update: Market Awaits First Round of French Election Voting.
26-JuneBond Market Update: Canada and Australia Inflation Data Dampen Disinflation Hopes.
30-May ECB preview: One alone is like none at all.
28-May Insights into this week's US Treasury auctions: 2-, 5-, and 7-year tenors overview.
22-May UK April’s Consumer Prices: Markets Abandon Hopes for a Linear Disinflation Path.
17-May Strong trade-weighted EUR gives ECB green light to cut rates, but bond bull rally unlikely
14-May UK labor data and Huw Pill's comments are not enough for a bond bull rally
08-May Bank of England preview: Rate cuts in mind, but patience required.
06-May Insights into this week's US Treasury refunding: 3-, 10-, and 30-year overview
02-May FOMC Meeting Takeaways: Why Inflation Risk Might Come to Bite the Fed
30-Apr FOMC preview: challenging the March dot plot.
29-Apr Bond Markets: the week ahead
25-Apr A tactical guide to the upcoming quarterly refunding announcement for bond and stock markets
22-Apr Analyzing market impacts: insights into the upcoming 5-year and 7-year US Treasury auctions.
18-Apr Italian BTPs are more attractive than German Schatz in today's macroeconomic context
16-Apr QT Tapering Looms Despite Macroeconomic Conditions: Fear of Liquidity Squeeze Drives Policy
08-Apr ECB preview: data-driven until June, Fed-dependent thereafter.
03-Apr Fixed income: Keep calm, seize the moment.
21-Mar FOMC bond takeaway: beware of ultra-long duration.
18-Mar Bank of England Preview: slight dovish shift in the MPC amid disinflationary trends.
18-Mar FOMC Preview: dot plot and quantitative tightening in focus.
12-Mar US Treasury auctions on the back of the US CPI might offer critical insights to investors.
07-Mar The Debt Management Office's Gilts Sales Matter More Than The Spring Budget.
05-Mar "Quantitative Tightening" or "Operation Twist" is coming up. What are the implications for bonds?
01-Mar The bond weekly wrap: slower than expected disinflation creates a floor for bond yields.
29-Feb ECB preview: European sovereign bond yields are likely to remain rangebound until the first rate cut.
27-Feb Defense bonds: risks and opportunities amid an uncertain geopolitical and macroeconomic environment.
23-Feb Two-year US Treasury notes offer an appealing entry point.
21-Feb Four reasons why the ECB keeps calm and cuts later.
14 Feb Higher CPI shows that rates volatility will remain elevated.
12 Feb Ultra-long sovereign issuance draws buy-the-dip demand but stakes are high.
06 Feb Technical Update - US 10-year Treasury yields resuming uptrend? US Treasury and Euro Bund futures testing key supports
05 Feb The upcoming 30-year US Treasury auction might rattle markets
30 Jan BOE preview: BoE hold unlikely to last as inflation plummets
29 Jan FOMC preview: the Fed might be on hold, but easing is inevitable.
26 Jan The ECB holds rates: is the bond rally sustainable?
18 Jan The most infamous bond trade: the Austria century bond.
16 Jan European sovereigns: inflation, stagnation and the bumpy road to rate cuts in 2024.
10 Jan US Treasuries: where do we go from here?
09 Jan Quarterly Outlook: bonds on everybody’s lips.