EM meltdown proves blessing for some

viernes 7 de febrero de 2014 15:54 GYT

By Danielle Robinson

NEW YORK, Feb 7 (IFR) - Issuers jumped back into the investment grade market this week and global asset managers went on the hunt for cheap emerging market corporate bonds, as issuers and investors pounced on unexpected opportunities that have arisen because of the EM currency meltdown.

In stark contrast to the consensus view at the beginning of this year, the 10-year Treasury yield has rallied from over 3.00% to 2.66%, as investors fled emerging markets and then unexpectedly weak US economic data further frayed nerves and sent equities plunging.

"The year started with a very strong consensus that stocks would go higher, growth would be stronger and rates would go higher," said Ashish Shah, global head of fixed income investment at AllianceBernstein.

"But what happened is that the economic data disappointed and emerging markets sold off. That started a much stronger rally in Treasuries than what people were positioned for."

Few in the industry expected the investment-grade corporate bond market to end January as the best-performing asset class other than Treasuries. Nor were asset managers expecting strong inflows into investment-grade funds.

But in the week ending February 5, Lipper reported an outflow of USD972m from high-yield funds, a USD20.905bn outflow from all equity funds and an USD2.21bn inflow into investment-grade funds.

In the year-to-date, high-grade bond funds have seen USD10.8bn of inflows in a year when the "great rotation" into stocks was expected to put pressure on the asset class. More than USD6bn, meanwhile, fled EM equity funds in the last week of January, according to EPFR.

The result has been a quick recovery in high-grade corporate bond spreads that had blown out in the last fortnight. And by Thursday, jumbo trades had returned to the new issue market too, with IBM issuing USD4.5bn on orders of USD9bn and Deutsche Bank USD3.5bn on books of USD6.5bn.   Continuación...