January 2016 Sovereigns outperform as investors rush for cover€¦ · Sovereigns outperform as...
Transcript of January 2016 Sovereigns outperform as investors rush for cover€¦ · Sovereigns outperform as...
Sovereigns outperform as investors rush for cover Continuing market volatility into the start of 2016 has put investors on the back foot, with sovereign bonds favoured over corporate and emerging market debt.
Developed nation sovereign bonds outperform; Markit iBoxx £ Gilts index returning 3.8%
Among emerging markets, Mexican and Brazilian sovereign bond returns beat peers
Half of the global fixed income ETF inflows last month were into US treasury bond funds 2016 started abruptly for investors as a sharp drop in China’s stock market induced volatility which spread among broader financial assets. This volatility set the tone for risk sentiment throughout last month. In bond markets, investors shunned riskier corporate bonds in favour of safer government and sovereign debt, particularly that of developed nations. US treasuries returned 2.2% on a total return basis, driven by longer maturity bonds flattening the short end of the yield curve, despite a hike in interest rates last December. But it was European sovereign debt that outperformed among bond classes, with UK gilts returning 3.8% while German bunds returned a steady 2.5%. Peripheral European sovereigns performed marginally worse, with Spain returning 1.6%, with the riskier Portugal the odd one out, returning -0.85%. Inflation-linked bonds performed positively on the whole last month, with UK inflation-linked gilts returning 5.4% as investors adjusted future inflation expectations amid an unexpected rise in December’s official figures. Corporate bonds underperformed overall, with the high yield (HY) bond market scarred again by a fresh downturn in commodity prices. US HY, which is highly exposed to commodity prices, continued its slide which started towards the back end of last year, with a -1.2% return last month. Both UK and European HY also saw returns last month fall into the red.
Broadly, there were only three sectors in the investment grade (IG) corporate bond market which saw negative returns last month; Basic materials, Oil & Gas and Insurance. All other sectors benefitted from the risk off sentiment in the market. In Euros, Technology was the outperformer, returning 1.79% last month, while in sterling it was the defensive Health Care index that saw its bonds return 2.42%. It was a similar story in US IG, with Health Care the best performing sector index, returning 1.22% on a total return basis last month. Emerging markets continued to stall coming into 2016, impacted by falling currencies and the prospect of lower future economic growth. Russian government bonds returned over 30% last year but a fresh plunge in oil prices over the past month has accelerated another selloff. Government bond returns in India and Turkey underperformed their developed nation rivals, while a late surge in commodity prices boded well for Brazilian bonds. Another bright spot was Mexico, where bonds have returned 1.3% so far this year helped by the healthy expansion in its manufacturing industry, with latest Markit PMI coming reading 52.4; signalling growth. ETFs Fixed income ETF flows last month were dominated by inflows into funds tracking US treasury bonds. Over $8.4bn capital flowed into these funds, making up over 50% over the total inflows for all fixed incomes ETFs globally last month. ETFs tracking European corporate bonds saw $377m of outflows last
Markit iBoxx Monthly
January 2016
Markit Fixed Income Research
month, despite the best efforts of ECB president Mario Draghi’s dovish rhetoric.
Markit Fixed Income Research
Asset class overview – January 2016/year to date Sovereign unless stated
2.2%
3.8%
2.5%2.3%
1.3%1.6%
0.2%
-1.2%
0.5%
-1.0%
0.7%
-0.4%
0.2%
-0.3%
1.4%
-0.8%
0.1%
0.6%0.9%
1.3%
1.9%
5.4%
1.7%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
US
UK
Ge
rma
ny
Fra
nce
Ita
ly
Sp
ain
US
IG
US
HY
EU
IG
EU
HY
UK
IG
UK
HY
EM
So
v U
SD
EM
Co
rp U
SD
Bra
zil
Ru
ssia
Ch
ina
Ind
ia
Tu
rke
y
Me
xic
o
US
UK
Ge
rma
ny
Markit Fixed Income Research
Tables - Euros
Markit iBoxx Index
Month YTD Current Month YTD Current Month YTD
€ Overall 1.54% 1.54% 0.99% -0.22% -0.22% 71.8 8.2 8.2 3,252 6.3
Sovereigns
€ Germany 2.50% 2.50% 0.42% -0.32% -0.32% -0.8 -0.2 -0.2 51 7.3
€ France 2.26% 2.26% 0.82% -0.26% -0.26% 40.4 5.6 5.6 43 7.6
€ Italy 1.27% 1.27% 1.49% -0.16% -0.16% 114.8 16.4 16.4 64 6.8
€ Spain 1.61% 1.61% 1.52% -0.22% -0.22% 123.9 9.3 9.3 35 6.4
€ Portugal -0.85% -0.85% 2.48% 0.17% 0.17% 226.3 48.6 48.6 12 6.1
€ Ireland 1.58% 1.58% 0.78% -0.23% -0.23% 57.5 6.7 6.7 12 6.2
Corporates
€ Corporates 0.52% 0.52% 1.70% -0.08% -0.08% 172.7 19.2 19.2 1,734 5.0
€ Corporates A 0.79% 0.79% 1.34% -0.14% -0.14% 136.9 13.5 13.5 706 5.0
€ Corporates AA 1.24% 1.24% 1.07% -0.22% -0.22% 101.3 7.8 7.8 176 5.4
€ Corporates AAA 1.82% 1.82% 1.13% -0.25% -0.25% 83.9 7.8 7.8 6 6.8
€ Corporates BBB 0.04% 0.04% 2.28% 0.02% 0.02% 233.6 28.3 28.3 846 4.8
€ Financials 0.44% 0.44% 1.63% -0.08% -0.08% 173.7 17.5 17.5 646 4.5
€ Banks 0.61% 0.61% 1.25% -0.13% -0.13% 141.2 12.0 12.0 439 4.1
€ Insurance -0.86% -0.86% 3.40% 0.16% 0.16% 333.0 45.4 45.4 88 6.0
€ Non-Financials 0.58% 0.58% 1.75% -0.08% -0.08% 172.1 20.3 20.3 1088 5.4
€ Basic Materials -0.21% -0.21% 3.14% -0.03% -0.03% 317.9 22.8 22.8 78 5.0
€ Consumer Goods 0.83% 0.83% 1.52% -0.14% -0.14% 149.2 14.6 14.6 223 5.3
€ Consumer Services 0.21% 0.21% 1.94% -0.03% -0.03% 190.7 26.9 26.9 82 5.8
€ Health Care 1.15% 1.15% 1.36% -0.18% -0.18% 130.9 11.5 11.5 50 5.8
€ Industrials 0.86% 0.86% 1.33% -0.15% -0.15% 137.6 12.4 12.4 179 4.9
€ Oil & Gas 0.24% 0.24% 2.23% 0.07% 0.07% 215.1 36.7 36.7 89 5.7
€ Technology 1.79% 1.79% 1.19% -0.23% -0.23% 101.9 9.1 9.1 21 7.2
€ Telecommunications 0.90% 0.90% 1.76% -0.14% -0.14% 166.8 15.6 15.6 120 5.5
€ Utilities 0.18% 0.18% 1.77% -0.02% -0.02% 176.3 26.6 26.6 246 5.3
€ Covered 0.88% 0.88% 0.54% -0.18% -0.18% 64.4 8.0 8.0 698 4.5
High Yield
€ High Yield -1.03% -1.03% 5.61% 0.31% 0.31% 579.6 57.4 57.4 537 3.7
€ High Yield B -1.33% -1.33% 7.36% -0.11% -0.11% 754.0 11.2 11.2 193 3.4
€ High Yield BB -0.78% -0.78% 4.66% 0.30% 0.30% 481.6 56.2 56.2 311 3.8
€ High Yield CCC -3.57% -3.57% 13.84% 1.01% 1.01% 1412.9 137.1 137.1 32 3.2
Inflation-linked
€ France Inflation-Linked 1.44% 1.44% -0.31% -0.18% -0.18% 0.0 0.0 0.0 19 7.7
€ Germany Inflation-Linked 1.74% 1.74% -0.55% -0.23% -0.23% 0.0 0.0 0.0 6 7.3
€ Italy Inflation-Linked -0.14% -0.14% 0.73% 0.03% 0.03% 0.0 0.0 0.0 10 7.8
ABS
Europe ABS 1.62% 6.45% 788
Contingent Convertible
€ Contingent Convertible -2.66% -2.62% 6.67% 0.88% 0.88% 29 4.3
Total Return Yield OAS Bonds Duration
Markit Fixed Income Research
US Dollar
Markit iBoxx Index
Month YTD Current Month YTD Current Month YTD
$ Overall 1.49% 1.49% 2.83% -0.24% -0.24% 80.2 2.3 2.3 5989 6.1
Sovereigns
$ Treasuries 2.23% 2.23% 2.00% -0.32% -0.32% -4.8 -6.2 -6.2 254 6.2
$ Treasuries 1-3Y 0.60% 0.60% 0.82% -0.27% -0.27% -1.5 -4.6 -4.6 91 1.8
$ Treasuries 3-5Y 1.68% 1.68% 1.19% -0.41% -0.41% -7.2 -6.2 -6.2 61 3.7
$ Treasuries 5-7Y 2.58% 2.58% 1.52% -0.44% -0.44% -7.6 -5.1 -5.1 39 5.5
$ Treasuries 7-10Y 3.12% 3.12% 1.82% -0.39% -0.39% -6.4 -4.8 -4.8 18 7.5
$ Treasuries 10-15Y 3.25% 3.25% 2.09% -0.33% -0.33% -3.5 -7.5 -7.5 11 9.2
$ Treasuries 15Y+ 5.31% 5.31% 2.66% -0.29% -0.29% -3.6 -7.2 -7.2 34 17.4
Corporates
$ Corporates 0.19% 0.19% 4.33% -0.02% -0.02% 228.0 26.2 26.2 4,752 6.4
$ Corporates A 0.60% 0.60% 3.77% -0.06% -0.06% 174.9 21.4 21.4 1898 6.1
$ Corporates AA 0.85% 0.85% 3.46% -0.11% -0.11% 143.7 17.2 17.2 525 6.0
$ Corporates AAA 1.10% 1.10% 3.53% -0.10% -0.10% 124.8 16.7 16.7 66 8.6
$ Corporates BBB -0.44% -0.44% 5.12% 0.06% 0.06% 304.9 34.8 34.8 2263 6.8
$ Banks 0.42% 0.42% 3.66% -0.06% -0.06% 190.5 23.8 23.8 994 4.7
$ Basic Materials -1.90% -1.90% 6.29% 0.23% 0.23% 427.6 53.4 53.4 253 6.4
$ Consumer Goods 0.88% 0.88% 3.78% -0.10% -0.10% 179.5 17.7 17.7 436 5.8
$ Consumer Services 0.50% 0.50% 4.44% -0.03% -0.03% 221.9 22.9 22.9 416 8.1
$ Financials 0.52% 0.52% 3.77% -0.07% -0.07% 193.0 21.5 21.5 1579 5.2
$ Health Care 1.22% 1.22% 3.84% -0.12% -0.12% 167.7 15.0 15.0 373 7.5
$ Industrials 1.12% 1.12% 3.96% -0.14% -0.14% 181.4 14.1 14.1 397 7.2
$ Insurance 0.43% 0.43% 4.42% -0.03% -0.03% 226.1 24.9 24.9 218 7.5
$ Non-Financials 0.00% 0.00% 4.57% 0.01% 0.01% 243.0 28.4 28.4 3173 7.2
$ Oil & Gas -2.55% -2.55% 5.92% 0.38% 0.38% 388.3 69.4 69.4 589 6.6
$ Technology 0.46% 0.46% 3.86% -0.04% -0.04% 178.3 25.2 25.2 214 6.7
$ Telecommunications -0.06% -0.06% 4.83% 0.04% 0.04% 256.4 31.2 31.2 159 8.3
$ Utilities 0.96% 0.96% 4.49% -0.09% -0.09% 223.3 15.7 15.7 336 8.3
High Yield
$ Liquid High Yield -1.24% -1.24% 8.36% 0.25% 0.25% 674.3 61.0 61.0 977 4.2
Inflation-linked
$ TIPS Inflation-Linked 1.90% 1.90% 0.69% -0.23% -0.23% 0.0 0.0 0.0 36 8.2
Emerging Markets
$ EM Sovereigns 0.22% 0.22% 5.77% -0.03% -0.03% 371.2 25.0 25.0 328 6.9
$ EM Corporates -0.28% -0.28% 6.44% 0.06% 0.06% 471.7 37.4 37.4 1381 4.5
Loans
$ Leveraged Loans -0.78% -0.78% 1206
RMBS
$ US RMBS Seniors -0.72% -0.72% 306
Convertible
$ CVBX -6.75% -6.74% 1.99% 1.08% 1.08% 96 6.4
Contingent Convertible
$ Contingent Convertible -1.85% -1.94% 7.58% 0.45% 0.45% 50 4.7
Total Return Yield OAS Bonds Duration
Markit Fixed Income Research
Sterling
Markit iBoxx Index
Month YTD Current Month YTD Current Month YTD
£ Overall 3.09% 3.09% 2.33% -0.30% -0.30% 40.1 3.3 3.3 1053 10.0
Sovereigns
£ Gilts 3.83% 3.83% 1.98% -0.33% -0.33% -0.1 0.0 0.0 39 10.8
£ Gilts 1-3 0.63% 0.63% 0.38% -0.33% -0.33% 18.2 8.5 8.5 5 1.8
£ Gilts 3-5 1.65% 1.65% 0.75% -0.43% -0.43% -0.8 -1.4 -1.4 6 3.6
£ Gilts 5-7 2.38% 2.38% 1.08% -0.43% -0.43% -9.7 -1.6 -1.6 5 5.3
£ Gilts 7-10 3.17% 3.17% 1.47% -0.39% -0.39% -7.3 -0.2 -0.2 4 7.7
£ Gilts 10-15 4.06% 4.06% 1.82% -0.29% -0.29% -2.6 2.0 2.0 3 10.4
£ Gilts 15+ 6.27% 6.27% 2.27% -0.31% -0.31% 1.4 0.0 0.0 16 18.7
Corporates
£ Corporates 0.65% 0.65% 3.88% -0.06% -0.06% 212.7 30.2 30.2 697 7.9
£ Corporates A 0.75% 0.75% 3.75% -0.07% -0.07% 193.7 29.3 29.3 274 8.5
£ Corporates AA 1.55% 1.55% 3.18% -0.17% -0.17% 133.5 19.9 19.9 76 8.8
£ Corporates AAA 3.87% 3.87% 2.73% -0.25% -0.25% 61.8 7.8 7.8 5 14.4
£ Corporates BBB 0.30% 0.30% 4.27% 0.00% 0.00% 260.4 36.4 36.4 342 7.1
£ Banks 0.39% 0.39% 3.73% -0.03% -0.03% 217.0 34.7 34.7 147 6.3
£ Basic Materials -2.44% -2.44% 5.82% 0.45% 0.45% 419.4 83.3 83.3 11 6.6
£ Consumer Goods 1.11% 1.11% 3.16% -0.19% -0.19% 168.3 19.0 19.0 60 5.7
£ Consumer Services 1.43% 1.43% 3.67% -0.14% -0.14% 182.0 21.6 21.6 56 8.9
£ Financials 0.35% 0.35% 3.93% -0.03% -0.03% 230.6 34.3 34.3 289 6.8
£ Health Care 2.42% 2.42% 3.55% -0.18% -0.18% 149.2 17.2 17.2 12 12.3
£ Industrials 1.35% 1.35% 3.54% -0.12% -0.12% 174.7 24.1 24.1 43 8.5
£ Insurance -0.95% -0.95% 4.99% 0.15% 0.15% 336.6 52.8 52.8 71 7.0
£ Non-Financials 0.85% 0.85% 3.86% -0.08% -0.08% 203.3 28.2 28.2 408 8.6
£ Oil & Gas -0.47% -0.47% 3.55% 0.11% 0.11% 191.4 48.5 48.5 19 6.7
£ Telecommunications 0.61% 0.61% 4.17% -0.03% -0.03% 234.5 32.7 32.7 43 8.5
£ Utilities 0.75% 0.75% 4.02% -0.06% -0.06% 214.5 29.8 29.8 160 9.5
Collateralized
£ Collateralized 2.55% 2.55% 3.31% -0.26% -0.26% 149.8 9.6 9.6 166 8.8
£ Covered 2.93% 2.93% 2.34% -0.40% -0.40% 81.8 -1.1 -1.1 22 7.0
£ ABS 2.06% 2.06% 3.49% -0.21% -0.21% 168.2 14.8 14.8 32 8.5
£ MBS 1.83% 1.83% 3.30% -0.22% -0.22% 163.4 14.7 14.7 41 7.1
£ Housing Associations 3.58% 3.58% 3.80% -0.23% -0.23% 161.9 10.4 10.4 42 14.4
High Yield
£ High Yield -0.40% -0.40% 6.44% 0.33% 0.33% 522.4 68.6 68.6 43 3.8
Inflation-linked
£ Gilt Inflation-Linked 5.38% 5.38% -0.92% -0.23% -0.23% 0.0 0.0 0.0 25 23.3
Contingent Convertible
£ Contingent Convertible 1.29% 2.76% 7.62% -0.13% 0.86% 0.0 0.0 0.0 8 5.6
Total Return Yield OAS Bonds Duration
Markit Fixed Income Research
Charts - Euros
Yield
Total Return
0
0.5
1
1.5
2
2.5
€ Corporates € Eurozone
92
94
96
98
100
102
104
106
108
110
112
€ Corporates € Eurozone
Markit Fixed Income Research
Asset swap spread
Curve steepness
0
50
100
150
200
250
AS
W (
bp
s)
€ Corporates AAA € Corporates AA
€ Corporates A € Corporates BBB
0
20
40
60
80
100
120
140
Bp
s
2s10s 10s30s
Markit Fixed Income Research
US Dollar
Yield
Total Return
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
$ Treasuries $ Corporates
96
97
98
99
100
101
102
103
104
$ Treasuries $ Corporates
Markit Fixed Income Research
Asset swap spread
Curve Steepness
0
50
100
150
200
250
300
350
AS
W (
bp
s)
$ Corporates AAA $ Corporates AA
$ Corporates A $ Corporates BBB
0
20
40
60
80
100
120
140
160
180
200
Bp
s
2s10s 10s30s
Markit Fixed Income Research
Sterling
Yield
Total Return
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
£ Corporates £ Gilts
90
92
94
96
98
100
102
104
106
£ Corporates £ Gilts
Markit Fixed Income Research
Asset swap spread
Curve steepness
0
50
100
150
200
250
300
Bp
s
£ Corporates AAA £ Corporates AA
£ Corporates A £ Corporates BBB
0
20
40
60
80
100
120
140
160
180
Bp
s
2s10s 10s30s
Markit Fixed Income Research
Risk free yield curves - Euros
-1
-0.5
0
0.5
1
1.5
2
0 10 20 30 40 50 60
Current
Month
Quarter
Year-to-date
Markit Fixed Income Research
US dollar
Sterling
0
0.5
1
1.5
2
2.5
3
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4
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3 year
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4
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1 Year
3 year
Markit Fixed Income Research
ETF Flows
Neil Mehta
Fixed Income Analyst
Markit
Tel: +44 207 260 2298
Email: [email protected]
For further information, please visit www.markit.com
Type Europe* USA* Asia* Total Europe* USA* Asia* Total
Broad Market 113 3,064 34 3,211 113 3,064 34 3,211
Sovereigns 2,557 8,407 (293) 10,671 2,557 8,407 (293) 10,671
Sub-Sovereigns 0 744 21 764 0 744 21 764
Corporates IG (579) 415 0 (164) (579) 415 0 (164)
Covered 83 (1) 0 82 83 (1) 0 82
Convertible 8 (39) 0 (32) 8 (39) 0 (32)
High Yield (293) 276 0 (17) (293) 276 0 (17)
Loans 0 0 0 0 0 0 0 0
Asset Backed 0 (128) 0 (128) 0 (128) 0 (128)
CDS 42 (8) 0 34 42 (8) 0 34
Inflation 401 263 0 664 401 263 0 664
Money Market 36 0 (621) (585) 36 0 (621) (585)
Preferred Stock 0 459 (27) 431 0 459 (27) 431
Yield-Curve Strategy 0 0 0 0 0 0 0 0
Total 2,368 13,451 (886) 14,932 2,368 13,451 (886) 14,932
Jan-16 YTD
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