This episode of Delta was recorded on Friday 13 March, as the iTraxx Crossover traded between 500-600bps – only a month on from when it traded just 9bps from its tightest levels, which indicated extreme confidence among investors. It is a different world now.
In episode 10, Andrew Jackson, Head of Fixed Income at the international business of Federated Hermes, and Stephane Michel, Senior Portfolio Manager, aim to reason with the reaction of fixed-income markets to the intensifying coronavirus outbreak in Europe.
The uncertainty has triggered dramatic falls in fixed-income asset valuations, primarily in the most liquid instruments. So far, these have mainly taken place among the most easily traded instruments, especially in the absence of the liquidity and price-moderating influence that used to be provided by market makers.
As the coronavirus-driven demand shock drives many businesses to the brink of failure, “a coordinated response in which governments support healthcare, spending and take care of their industries in a crisis,” is required, Michel says.
Markets are unlikely to rebound quickly. A more gradual recovery, punctuated by episodes of volatility, is more probable as the pandemic is overcome and the economic damage repaired. Investors need to be agile.
“It’s a time to be active – there are so many opportunities – but you don’t need to be long,” Michel says.
It is a challenging time. Hit pause amid the panic: tune in to Delta.
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