Stocks vs bonds
We are having lots of conversations about the bond market sell-off, and the dangerous of duration, at the moment. Something we think that’s worth keeping in mind is the below graph, that’s done the rounds on the internet. It shows when the increasing in bonds gets “serious”, say nearly a full percentage point (75bps somewhat arbitrarily here) you’ve had significant draw downs in equity markets also.
We are near those levels, and of course, equity markets are very strong. So it is at the sort of levels where having some defensives, or at least a touch less growth, is not a bad thing.
Company administrations
Talking to a client today, and discussing company administrations. I’d made the observation that relative to overall, the % wasn’t too bad. And rechecking the numbers, even the total amount isn’t too bad either (so in absolute terms, as well as relative). We are still below the level we’d have naturally expected from the pre-COVID trend.
Credit exposures
Famous last words, perhaps, but given we have a range of floating rate credit managers on across our various portfolios, worth mentioning that we’ve been keeping in close contact as some high profile private credit (usually construction and/or retail) hit the skids.
For the significant majority, our exposures are high quality investment grade credit. The historical default rates have typically been very, very low, and the recovery rates very high. And so you wind up with a very modest haircut to the credit spread (basically the excess bond premia). Below BBB, into sub investment grade, things change. You need enormous yields to make CCC stack up, for example.
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