To compensate for the growing inaccuracy of the Julian calendar, which had governed Western society since Julius Caesar, Pope Gregory XIII decreed in 1582 that 4 October would be followed by 15 October that year. The pontiff’s decision sparked a revolt among the servants, who demanded payment of their wages for the whole month, which the masters refused.
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Is geopolitical risk a market risk?
Reminder of portfolio management strategies
We have already written a great deal about central banks, and we will return to the subject again in this monthly report. On the subject of monetary policy, the borderline between forward-looking analysis and repetitive rhetoric has now been reached. The Swiss National Bank’s (SNB) surprise start to the cycle of key rate cuts does not revisit the subject (the SNB’s decision is also motivated by a problem of overvaluation of the Swiss franc), or even the fashionable thesis that the ECB could finally cut rates before the FED. The duration of a longer-than-expected pause, which has been our scenario since last year, has now been taken on board by the markets. Additional volatility would come from an acceleration in the timing and pace of the downturn. With this in mind, we are comfortable with our ‘cruising’ duration of 4.
Newsflash on interest rates
The High Yield market has been in turmoil recently and many names continue to be under pressure: Altice, Atos, Grifols, Ardagh and Intrum to name but a few. The latest primary issues are marking time: Pro Group and CBR Fashion, in particular. Only FNAC is doing well.
5 questions to a fund manager – Xavier Nicolas
After 30 years of falling rates and 2 years of rising rates, what is the state of the bond market today?
Despite a number of disruptive events – the fall of the Berlin Wall, the 1994 bond crash, the Gulf War, the bursting of the dotcom bubble and the collapse of Lehman Brothers – long yields fell almost uninterrupted for more than 30 years between 1990 and 2020, before rising sharply between 2021 and 2023, wiping out almost 10 years of performance. Over these years, the market has undergone a profound transformation, helped by the growing indebtedness of governments. The scope of available instruments has widened. Limited to government debt in 1990, bank, corporate and private debt have since been added to the pool. The instruments have also become more sophisticated, with the arrival and growing importance of futures markets, structured products and, finally, synthetic products, fuelling an increasingly flourishing industry. Hedge funds, thematic funds, index funds, ETFs, total return funds, dated funds – each year brought its cohort of increasingly innovative products.
Jerome Powell and the boustrophedon
If we are looking for the principle that guides Jerome Powell in his communication with the markets, we can find it in the boustrophedon style of writing that goes from right to left and then from left to right. Used in archaic Greece until 402 B.C., this type of writing was inspired by the march of an ox marking its furrow in a field.
QUAERO CAPITAL launches an SRI-labelled bond fund
QUAERO CAPITAL announces the launch of Quaero Capital Funds (Lux) – Bond Investment Opportunity, a new bond sub-fund of its Luxembourg SICAV Quaero Capital Funds (Lux). The fund invests mainly in the debt markets of OECD member countries in euros, incorporating ESG criteria. The team, comprising Xavier Nicolas, Frédéric Loisel and Philippe Scemama, has been managing a similar strategy since January 2022 in the form of a specialist professional fund under French law. The strategy is now available in Luxembourg UCITS format.
Bonds are (finally) on a roll
The situation on the euro bond market has changed completely since March. As can be seen from the chart below, while most yields on the various credit qualities and maturities were below 3%, these levels have now completely disappeared. In most cases, yields are between 3% and 5%, and even exceed 5% for ratings below BB+.
Convertible bonds: the comeback
Key points for 2024
We are sailing through particularly troubled waters at the moment, with economic pitfalls but also major geopolitical whirlwinds, between the war in Ukraine, unrest in the Middle East and tensions between China and Taiwan. On top of this, there are important electoral deadlines this year, not only the US presidential election, but also elections in the European Union, Taiwan, Russia and India.
The attractiveness of convertible bonds in a context of high interest rates
Interview with Eric Daniel, Convertible Bond Strategy Manager, by Thierry Callault, Head of Business Development.
What impact have the geopolitical context and the sharp rise in interest rates had on the asset class represented by convertible bonds?
In the space of three years, the world has seen a global pandemic, a war between Russia and Ukraine and now an armed conflict in the Middle East between Israel and Hamas. Against this uncertain and frightening geopolitical backdrop, the central banks (FED and ECB) have embarked on a cycle of rapid and significant interest rate rises in order to combat inflation and put an end to years of accommodative monetary policy. While geopolitical events have had an impact on equity market performance and volatility, the central banks’ paradigm shift created very unfavourable conditions for convertible bonds in 2022 in particular. Indeed, the rise in interest rates, the widening of credit spreads, the fall in equity markets and a slight increase in equity volatility all worked against the asset class, and this lack of decorrelation made 2022 one of the worst years for convertible bonds.
The reality of the impact of geopolitics on bond markets
“Geography is the only art in which the latest works are always the best“.
It is not certain that Voltaire would have said the same thing about geopolitics and, above all, about all the more or less enlightened considerations it is currently generating in the financial markets. For although the geopolitical dimension has never been so overwhelming, the reality of its impact, particularly on the bond markets, is paradoxically limited. This is clearly less the case for equity and currency markets. Jean-Pierre Petit discusses this at length in his analysis.