November | Bond market wrap- winners & losers
Since the beginning of the year, the Sterling bond markets have rallied strongly as concern over a no-deal Brexit subsided. But who were the winners and losers?
YTD performance *
YTD Performance has been exceptionally strong. We see bond performance continuing to be solid in 2020 and with greater issuance than in 2019.
The companies whose bonds performed the most strongly during the year were those considered riskier and which fell in price at the end of last year (on Brexit concerns) but who had strong financial performance in 2019 or were affected by events, such as mergers. For example Lowell (Garfunkelux) 11% bonds have returned 38% YTD, Unique pub co. bonds (owned by Enterprise Inns) jumped on merger talks with Stonegate returning 36% YTD given the 2032 maturity and call protection (prevents company from repaying bonds early). Petrobras, the Brazilian oil giant also generated 22% on the back of oil price increases. Kirs, Shop Direct, New Day, John Lewis, and Travelex also performed well while Refinitiv jumped on acquisition news.
Banks and Financials show their strength
Banks and financial companies with high yield/perpetual bonds all generally performed strongly (Travelex, Cabot, New Day, Ardonagh, Lowell, Together, Barclays, Shawbrook, Pension Insurance, Clydesdale/Virgin Money) and we expect this industry sector to continue to perform well next year as it has done over the last 10 years.
Investment-grade performs strongly across the board
Strong and highly rated companies (investment grade/cross-over) such as Vodafone, Dubai Ports, William Hill, TP ICAP, Ocado, Virgin Media, Tesco also performed very well as the price of their bonds was bid up on strong demand. But with the price rise, returns for new buyers are now lower so new bond buyers should factor that in.
Short-dated high yield did well
In addition, shorter-dated bonds (maturing in 1–2 years) presented a compelling buying opportunity. Vue Entertainment 7.75%s (now repaid), Premium Credit 7.0%s, Intergen 7.5%s, and Domestic General 7.875%s (refinanced) all generated high single-digit returns.
But poor financial performance dragged down some companies
Those companies with weaker ratings or higher amounts of debt…
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