M&G says Defaults in European Retailers and US Energy on the rise

As it's been so quiet on here for a while I thought I'd post this link just to keep everyone's brains ticking over and as a reminder that company debt isn't just a buy and forget proposition:

www.bondvigilantes.com/blog/2019/10/11/defaults-in-european-retailers-and-us-energy-on-the-rise/?utm_campaign=Bond Vigilantes English&utm_medium=email&utm_source=Eloqua


  • It does make you wonder....would you rather lend money to Greece at a negative yield or the likes of Ecclesiastical, The Co-Operative, Balfour Beatty, Natwest Bank etc. for yields of between 4.8% and 5.9%?

    OK, so the Greek debt is very short term whereas most of those above are perpetuals but even so?
  • Laughton, Great that you are keeping our brains in "ticking Order". With the lack of new suitable issues, been difficult not to put more money into perpetuals, however I think I have more than enough, hence the migration of funds towards Infrastructure & Environmental, eg HICL, INPP, TRIG, UKW, JLEN, BBGI, plus healthcare THRL, IHR & PHP. I have recently gone back into ONESAVINGS BANK PL 7.875%-STP SUB PERP GBP1000 (SEDOL:B67JQX6), which has an resetable coupon, currently pay 4.6007%, (Reset every 5 years at Reset Rate 4.0% 5yr gilts, next reset August 2024). This provides some protection against higher future interest rates. I wonder whether flog securties like A2D1, as the yield is only 1.91% (at price 108.28). Also with very low interest rates, I am concerned with the future profitability of the banking & insurance sectors!
    Would welcome any feedback on any other suitable Fixed Income investments
  • how about some equities instead of fixed income

    greek debt is in euros and is pretty much backed by ecb : )

  • Arjungaur, That's because we are in the "Fixed Income Investor" forum & not an Equity forum.
    Negative Yields on Greek short term debt indicates that Europeans are very unsure to place their savings - We are perhaps very unsure of the future - Mr Trump & BrExit not helping matters. Economic news getting worse by the day, locally, nationally & Internationally
  • Shaun one savings bank has been ticking lower lately, no doubt due to the lower reset and the General economic worries. I have been looking at a few pibs and recently bought a few Halifax 9.375. In an attempt to try and get a 5/6 % yield. Being a bit cautious bearing what happened in 2007/8 and how prices plummeted.
    It's frustrating, trying to keep things ticking over with cash earning virtually nothing but trying to spread the risk
  • edited October 2019
    why are you in the fixed income forum and not an equity forum

    negative yields anywhere indicates that the growth and inflation expectations are low, risk free bonds are great in slow growth, deflationary environment

    there has been some movement on both the trade war and brexit, check the two day chart on sterling and us/uk 'equities'

    where are you trying to spread the risk

    frustrating > emotional pressure > decreases your performance -

  • Colin, I agree with your comments, and happy with current average yield I'm getting
    Portfolio Average Yield based on original cost = 5.7%
    current market value = 5.5%
    No frustration, no "High Blood Pressure" (Emotional pressure), Portfolio Performance for 2019 has been exceptionally good!
    Includes one or two Equity holding including AJ Bell (good holding)
    Re PIBS, possibility that some Building Securities may call them
    eg PRINCIPALITY BS 7%-FR SUB PERP GBP1000'REGS (SEDOL:B010CN5) has a call/reset date in June 2020, reset = Prevailing 5yr gilt yield + 300 bp
    Worth having Northern Electric PLC 8.061 % Cum.Pref.Shs (LSE:NTEA) as it is non banking/insurance - current yield 5.9% (2.5% of total portfolio)

    Colin, any other suggestions for a diversified portfolio?
  • Noticed the sharp fall in gilts, hardly surprising when either Boris or Jeremy will continue to shake the magic money tree. Who, at home or abroad, will want to buy gilts, though, unless yields reflect the various risks that lie ahead. Whilst other countries (e.g. Poland) also realise that austerity is no longer poltically viable, and will issue debt, the U.K., due to Brexit is a much greater risk and investors rightly expect to be compensated. Would I want to buy corporate bonds here.. the answer is obvious, best to hold tight.
  • edited October 2019
    Portfolio Performance > financial pressure > decreases your performance
    Fixed Income and not Equities > inertia > decreases your performance

    gilts are down from the movement in brexit and resulting prospective growth/inflation, not from magic money tree, if anything we want more of fiscal support though sajid wouldn't be able to get much done in parliament with govt not even having a working majority

    there are plenty of folks willing to buy gilts, that's why yields are low, risk free bonds are great in slow growth, deflationary environment

    the UK due to Brexit is a much greater risk of slow growth and deflation and investors are thus rightly been bidding up gilt prices and selling off sterling when no-deal probability goes up

    do you want to buy corporate bonds.. the answer seems obvious to you.. is it yes or no or somewhere in between.. are you holding 100% cash or somewhere in between
  • edited October 2019
    there seems to be bit of confusion on how local currency sovereign debt works, so let me paint a picture

    say US defaults on its debt due to their debt ceiling nonsense, what happens to treasury prices, no they don't go down, they actually go up, that's the whole counterintuitive move in local currency sovereign debt prices, the holders know very well it's a temporary default, US has never defaulted, not during civil war, not even in the independence revolution when hamilton decided to restructure, meet coupon payments and not go for outright default

    now because there has been technical default, there is going to be lot of turmoil, growth and inflation expectations are going to come down and risk free bonds are great in slow growth, deflationary environment; rest everything equities, real assets, commodities are going to do poorly

    remember local currency sovereign debt can always be paid off with central bank buying the next round of issuance, now if you take this money printing to extreme you can get runaway inflation and run on the local currency, but that's like some banana republic, the most indebted of developed economies, Japan has debt/gdp of several hundred percent and is happily issuing long debt at negative yields, infact kuroda is so frustrated with depressed yields that he is made it a mandate to try increasing those and steepen the yield curve (https://www.bloomberg.com/news/articles/2019-10-09/this-is-japan-s-latest-bold-desperate-monetary-policy-experiment), and guess what, he is failed, that's because the base money is only small percentage of broad money, if the central bank can't get credit creation going, all the money printed by central bank isn't sufficient to make up for the falling credit - https://www.bridgewater.com/research-library/how-the-economic-machine-works/
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