Weekly Market Recap
Asia Pacific
13/04/2020
Week in review
- ANZ job adds declines 10.3% m/m
- Housing finance done 1.7%m/m
- RBA financial stability review
Week ahead
- NAB business confidence
- Westpac consumer confidence
- Australia labour market report.
Thought of the week
Spreads have started to narrow in the U.S. investment grade bond market as investors lean into the Federal Reserve’s (Fed’s) decision to buy corporate bonds. However, the Fed is likely to focus on the strongest rated bonds amongst the high grade market, leaving a question over the securities just above the line being considered junk. The chart below looks at those bonds, the fallen angels that are downgraded from investment grade to high yield where there has been a rise in the market value as more companies are downgraded. Downgrades, or expected downgrades, can create forced selling by institutional investors and add further pressure on lower rated investment grade bonds. While this cycle persists, fixed income investors will need to focus on quality of the bonds they own.
Fallen angels on the rise
Market capitalization of the U.S. High Yield Fallen Angel Index, $bn
Source: ICE BofA Merrill Lynch, FactSet, J.P. Morgan Asset Management, all returns in local currency unless otherwise stated.
Equity price levels and returns: Levels are prices and returns represent total returns for stated period.
Bond yields and returns: Yields are yield to maturity for government bonds and yield to worst for corporate bonds. All returns represent total returns. AusBond Comp is the AusBond Composite 0+ Yr, AusBond IG is the AusBond Credit 0+ Yr both provided by Bloomberg.
Currencies: All cross rates are against the Australian dollar. An appreciation of the foreign currency against the Australian dollar would be positive and a depreciation of the foreign currency against the Australian dollar would be negative.
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