DM Credit Indicator: Credit Chronicle Q4 2020

Read the latest investment review from Ninety One’s Developed Market Credit team. Covering the major global credit markets, it includes a special focus article, offering a timely insight into a key topic for investors.

Jan 11, 2021

20 minutes

DM Credit Team
Read the latest investment review from Ninety One’s Developed Market Credit team. Covering the major global credit markets, it includes a special focus article, offering a timely insight into a key topic for investors.

Credit markets enjoyed a very strong quarterly performance across the board, led predominantly by lower rated bonds and COVID-19 affected industries, as investors adopted a risk on approach to markets and spreads narrowed meaningfully. COVID news flow strongly influenced market sentiment throughout the period, initially as rising infections across Europe and the US led to a sell-off in global markets, and then contributing to a strong rebound in November on news of successful vaccine trials.

The fight-back against COVID further intensified during December with a handful of countries, including the US and UK, starting mass vaccinations, while a stimulus bill was finally signed by President Donald Trump just after Christmas. US equities closed the year at new highs, mirrored by a further decline in the US dollar index, and 10-year US Treasury yields at historic lows. Hopes that more conventional leadership in the White House will result in a less confrontational US trade policy, and the rollout of effective vaccines, have also reinforced expectations of a global economic recovery in 2021.

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Specific risks:

Default: There is a risk that the issuers of fixed income investments (e.g. bonds) may not be able to meet interest payments nor repay the money they have borrowed. The worse the credit quality of the issuer, the greater the risk of default and therefore investment loss. Derivatives: The use of derivatives may increase overall risk by magnifying the effect of both gains and losses leading to large changes in value and potentially large financial loss. A counterparty to a derivative transaction may fail to meet its obligations which may also lead to a financial loss. Interest rate: The value of fixed income investments (e.g. bonds) tends to decrease when interest rates rise. Liquidity: There may be insufficient buyers or sellers of particular investments giving rise to delays in trading and being able to make settlements, and/or large fluctuations in value. This may lead to larger financial losses than might be anticipated.

General risks:

All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results.

DM Credit Team

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

All rights reserved. Issued by Ninety One.