3 - Christ Op He Dispas, Gestion Obligataire Banque Degroof
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Transcript of 3 - Christ Op He Dispas, Gestion Obligataire Banque Degroof
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Les obligations dentreprises (corporate bonds) et
les obligations indexes sur linflation comme placements stratgiques pour les fonds de
pension
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Table of Contents
Corporate Bonds
Inflation linked Bonds
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5Source : Moody s
Inflation Linked BondsCorporate Bonds
What BBB means?
Sufficient capacity to pay interest and repay
principal in normal circumstances but
More sensitive to adverse economic conditions orchanging circumstances than higher rated categories
Some reminder - What is a corporate bond?
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6Source : Moody s
Inflation Linked BondsCorporate Bonds
S&P Moody's
AAA AaaAA+ Aa1AA Aa2AA- Aa3A+ A1A A2A- A3
BBB+ Baa1BBB Baa2BBB- Baa3
Investment Grade
Some reminder - What is a corporate bond?
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7Source : Moody s
Inflation Linked BondsCorporate Bonds
S&P M oody's
BB+ Ba1BB Ba2BB- Ba3
B+ B1B B2B- B3
CCC+CCC CaaCCC-CC+CC CaCC-
Speculative grade / "Junk bonds"
Some reminder - What is a corporate bond?
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8Source : Moody s
Cumulative losses (%) much higher below investment grade !
Inflation Linked BondsCorporate Bonds
Some reminder - What is a corporate bond?
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Main characteristics
Source : Moody s
Inflation Linked BondsCorporate Bonds
Iboxx Corporate EUR JP Morgan EMU
YTM 6.24% (7.23% next call date) 3.24%
Duration 4.16 years 6.28 years
Composition Around 50% financials 23% Germany + 22% Italy+ 20% France + 8.4% Spain
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Sources: Soci t Gn rale Credit Outlook 2009
Why Invest in Corporate Bonds ?
Inflation Linked BondsCorporate Bonds
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Sources: Soci t Gn rale Credit Outlook 2009
Why Invest in Corporate Bonds ?
Inflation Linked BondsCorporate Bonds
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Why Invest in Corporate Bonds ?
In the long Run:
Implicit default probabilities > Historical default probabilities
Worst case scenario already priced in
Important liquidity premium
Government interventions
Risk/return ratio very attractive
Inflation Linked BondsCorporate Bonds
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3%-4%Corporate
bonds
6%-45%Equities
Expected riskpremium today
Performance2008
Inflation Linked BondsCorporate Bonds
Why Invest in Corporate Bonds ?
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Assets
Attractive
Risk/return ratio
Inflation Linked BondsCorporate Bonds
Why a Pension Fund should Invest in Corporate Bonds ?
Liabilities
IAS 19 : Discount
rate based onCorporate yield
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Main Characteristics
An inflation linked bond is a bond which protects against unexpectedinflation increase
This inflation is measured by a Consumer Price Index (CPI)
Government Bonds (in euro, mainly France, Italy and Germany)
Key concepts to analyse Inflation Linked Bonds are:
Real YTM
Break even
Inflation Linked BondsCorporate Bonds
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Main Characteristics
You buy 1 000 000 EUR of each
OAT : you pay 1 000 000 x clean price + accrued interests
OAT I/L : you pay 1 000 000 x clean price x index ratio + accrued interest x index ratio
Inflation Linked BondsCorporate Bonds
France OAT I/L France OATMaturity 25/07/2015 25/10/2015
Coupon 1.60% 3%
Index ratio 1.08968 -
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Break Even
Break even = YTM of a normal Bond YTM of an inflationlinked bond with the same maturity and the same issuer =Inflation risk premium
Break even is the inflation that will make the return of theprotected inflation bond equal to the nominal one over theremaining life of the bond
Inflation Linked BondsCorporate Bonds
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Break Even
Annualized inflation over the given period > Break even
The inflation linked bond will get a higher returnthan nominal one
Annualized inflation over the given period = Break evenBoth will get the same return
Annualized inflation over the given period < Break even
Normal bond will get better return
Inflation Linked BondsCorporate Bonds
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Liabilities of Pension Funds linked to inflation
Hedge inflation risk
Diversification
Why Invest in Inflation Linked Bonds ?
Inflation Linked BondsCorporate Bonds
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Relatively high real yield-to-maturity
Relatively low break even
Scenario analysis must be carried out
Market timing in Inflation Linked Bonds ?
Inflation Linked BondsCorporate Bonds
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On an historical basis : Relatively low break even Positive signal
Current situation
Inflation Linked BondsCorporate Bonds
0
0.5
1
1.5
2
2.5
3
3.5
4
4.55
1 1 / 0 6
0 1 / 0 7
0 3 / 0
7
0 5 / 0
7
0 7 / 0 7
0 9 / 0 7
1 1 / 0
7
0 1 / 0
8
0 3 / 0 8
0 5 / 0
8
0 7 / 0
8
0 9 / 0
8
1 1 / 0 8
0 1 / 0
9
0 3 / 0 9
%
G erman 7 Y No mina l Ra te Ge rman 7 Y Re al Rate Brea k-Even
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Conclusions
Corporate Bonds
Attractive risk/returnratio
IAS 19
Inflation Linked Bonds
Hedge vs Inflationrisk
Timing attractive onan historical basis