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19-02-2025
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Money Managers See Dangers in Credit's Eerie Calm
(Bloomberg) -- Price moves in the global credit market are so calm that some money managers are wondering whether a relentless rally in corporate bonds is becoming a red flag. Why Barcelona Bought the Building That Symbolizes Its Housing Crisis Progressive Portland Plots a Comeback Por qué Barcelona compró el edificio que simboliza su crisis inmobiliaria A Filmmaker's Surreal Journey Into His Own Private Winnipeg How to Build a Neurodiverse City A handful, including those at Franklin Templeton Investment Management and AXA Investment Managers, are getting more cautious about corporate bonds. With investment-grade spreads at the tightest in almost two decades, they've been reducing allocation to the asset class in favor of government bonds and cash, believing that the meager reward isn't worth the risks. These managers are going against the crowd. Flows into corporate bond funds have been unremitting, while systematic traders are 'max long the asset class,' according to UBS Group AG. Instead of spreads, these investors are focused on the attractive coupons, or interest income, that corporate debt can offer. That's meant that even market-moving events like US President Donald Trump's tariff threats and the potential for fewer interest-rate cuts by central banks haven't managed to knock credit down. 'When everybody becomes complacent that everything's just fine, it normally isn't,' said David Zahn, head of European fixed income at Franklin Templeton. 'The chances of a policy mistake in multiple jurisdictions is incredibly high,' he said. Zahn's total return fund has cut exposure to credit from more than 40% last summer to just under a quarter now, preferring government bonds. AXA portfolio manager Nicolas Trindade has also been taking a more defensive position. He said that his usual 10% allocation to cash and sovereign debt now stands at 30%, the highest since late 2021. These asset classes are much more liquid, allowing money managers to jump back into corporate bonds if valuations improve. 'Yields are high because sovereign yields are high, not because of credit spreads,' Trindale said. 'But a lot of investors are just all-yield buying. Investors think the Fed will cut, they think Trump won't do all the things he said he would on the campaign trail.' Still, for now, investors 'can afford to be complacent because the level of yields available are still very high,' he added. And many have been attracted by that. US high-grade funds saw their strongest inflows in 11 weeks at the start of February, according to EPFR Global data compiled by Bank of America strategists, while European high-grade funds recorded weekly inflows in all but four of the past 67 weeks. Meanwhile, UBS's quantitative model showed that systematic traders are also piling in to 'keep harvesting carry,' or interest income, a situation that isn't expected to change in the near term, strategists including Nicolas Le Roux wrote in a note last week. The broad-based buying has depressed metrics of volatility to the point where movements in risk premiums have rarely been as tranquil in recent years. Volatility on the cost of protection against default among North American investment-grade companies over a rolling 60-day period is close to its lowest level since 2021 and has been consistently subdued this month, based on data compiled by Bloomberg. It's a similar picture for volatility measures on key US and European investment-grade indexes and European credit-default swaps. 'This is different to the 2010s. Credit is not a spread product any more but a yield product,' said Raphael Thuin, head of capital markets strategies at Tikehau Capital. 'Looking at the fundamentals, it's a very benign picture. And the technicals are strong, which is why you have so little volatility in spreads,' he said. Still, spreads are not immune to economic woes and the biggest challenge for money managers will be deciding when to act on those risks. 'The sheer level of uncertainty around trade policy makes any analysis difficult to incorporate into decision making ahead of the event,' Mark Dowding, chief investment officer at RBC BlueBay Asset Management, wrote in a note. 'Nonetheless, this leads us to think that there may be some level of complacency in the prevailing status quo in market pricing.' Joost De Graaf, co-head of the credits team at Van Lanschot Kempen, agrees. 'You can decide not to participate as a credit investor but then you need to have patience, because you don't know when exactly the market will turn,' said De Graaf, who has a slight overweight on credit risk. 'What would the cause of the downturn be? Your guess is as good as mine.' (Adds additional chart.) The Undocumented Workers Who Helped Build Elon Musk's Texas Gigafactory The Unicorn Boom Is Over, and Startups Are Getting Desperate Japan Perfected 7-Eleven. Why Can't the US Get It Right? The NBA Has Fallen Into an Efficiency Trap How Silicon Valley Swung From Obama to Trump ©2025 Bloomberg L.P. Sign in to access your portfolio
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18-02-2025
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UK Plans FTSE Firm-Style Unit for £20 Billion Defense Spending
(Bloomberg) -- The UK must urgently re-arm as part of a commitment to step up European security, Defence Secretary John Healey said, announcing the establishment of a unit within his department to oversee £20 billion ($25 billion) of military spending. Why Barcelona Bought the Building That Symbolizes Its Housing Crisis Progressive Portland Plots a Comeback Por qué Barcelona compró el edificio que simboliza su crisis inmobiliaria A Filmmaker's Surreal Journey Into His Own Private Winnipeg How to Build a Neurodiverse City Announcing what he called the 'biggest shake-up of UK defense for over 50 years,' Healey said he was merging separate defense procurement budgets into a single one controlled by a new National Armaments Director in a bid to cut waste, reduce duplication and better cater to the needs of Britain's armed forces. The move, he said, would save the British taxpayer at least £10 billion over the next decade. 'They will execute a £20 billion-plus budget to build and sustain our national arsenal, because at this time we must re-arm Britain,' Healey said in a speech on Tuesday at the Institute for Government in London. 'I see this as a new FTSE 100 company within the MoD tasked, if you like, with getting the very best capabilities needed into the hands of our front-line forces.' Defense spending has risen to the fore of the national agenda as Prime Minister Keir Starmer comes under pressure to increase the budget for the armed forces from opposition parties, military chiefs and Donald Trump. It's been given particular urgency in the past week after the US president stunned European leaders by agreeing to start peace talks with Russia to resolve its war in Ukraine, while his defense secretary, Pete Hegseth said the US was no longer 'primarily focused' on Europe's security, and that European nations must provide the 'overwhelming' share of aid to Ukraine. Prime Minister Keir Starmer said Monday that 'the issue of burden-sharing is not new, but it is now pressing.' He also said for the first time that the UK was willing to send troops to Ukraine if needed under a peace deal, but only if Trump also offered US security guarantees. 'We need a security guarantee for Ukraine in Ukraine that is capable of delivering what Trump says he wants which is a durable peace,' Healey said. 'European countries have to play leading part in that guarantee but require a backstop from the US because in the end it's only the US that can provide the deterrence to Putin that will prevent him attacking again.' Starmer joined with the leaders of other big European military powers in Paris on Monday for crisis talks on how to gain back some control of Ukraine and Europe's future. 'This is a once in a generation moment for the collective security of our own continent,' the British premier told reporters in Paris afterward. Trump has told European leaders they should spend 5% of their gross domestic product on defense — a proportion that not even the US comes close to meeting. The UK proportion stands at 2.33%, and while Starmer has prepared to raise that to 2.5% at a cost of about £5 billion per year, he's yet to spell out a time-line for getting there, saying that call will be made when a strategic defense review publishes its conclusions by the end of June. Nevertheless, UK military chiefs have privately warned the government that even 2.5% of economic output won't be enough to fund Britain's defense needs. The new National Armaments Director would be one of four senior leaders in the Ministry of Defence, according to Healy. The others would be the permanent secretary, who is the ministry's top civil servant, the chief of defense staff, and a chief of defense nuclear, who would lead work on Britain's nuclear capability. 'We will match sustained investment with serious reform,' Healey said. 'It'll mean growing the economy, it'll mean a more muscular defense for a more dangerous world, it'll mean a Britain which is secure at home and strong abroad.' The Undocumented Workers Who Helped Build Elon Musk's Texas Gigafactory The Unicorn Boom Is Over, and Startups Are Getting Desperate Japan Perfected 7-Eleven. Why Can't the US Get It Right? The NBA Has Fallen Into an Efficiency Trap Before DeepSeek Blew Up, Chatbot Arena Announced Its Arrival ©2025 Bloomberg L.P.
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18-02-2025
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Trump, Putin Teams Talk in Saudi on Ukraine as Europe Fumes
(Bloomberg) -- Top US and Russian officials started meeting in Saudi Arabia on Tuesday to discuss how to end the war in Ukraine, without anyone from Kyiv taking part and as Europe struggles to respond to the rapid pace of events. Why Barcelona Bought the Building That Symbolizes Its Housing Crisis Progressive Portland Plots a Comeback Por qué Barcelona compró el edificio que simboliza su crisis inmobiliaria A Filmmaker's Surreal Journey Into His Own Private Winnipeg How to Build a Neurodiverse City The talks in Riyadh follow US President Donald Trump's landmark phone call with his Russian counterpart Vladimir Putin last week in which he reversed key US positions on the conflict. They could pave the way for a summit of the two leaders as soon as next week. Ukrainian President Volodymyr Zelenskiy has warned his country won't recognize 'any agreements about us without us.' Television pictures showed White House National Security Advisor Mike Waltz, Trump's Middle East envoy Steve Witkoff and Secretary of State Marco Rubio sitting opposite Russian Foreign Minister Sergei Lavrov and Kremlin foreign-policy aide Yuri Ushakov. Saudi Foreign Minister Prince Faisal Bin Farhan was also there. The meeting is a way to 'determine if the Russians, perhaps, are serious and if they're on the same page' with the US when it comes to ending the war in Ukraine, according to State Department spokeswoman Tammy Bruce, who briefed reporters traveling with Rubio. 'The main thing is to begin a real normalization of relations between us and Washington,' Ushakov told Russian state television on his arrival in Riyadh late Monday. The meeting will focus on preparations for possible negotiations over a settlement in Ukraine and for a meeting between the two presidents, he added. The head of Russia's sovereign wealth fund, Kirill Dmitriev, may join the talks to deal with economic issues, Ushakov said. US firms have lost $300 billion from quitting the Russian market since the war started, Dmitriev said. Trump described last week's 90-minute call with Putin as 'highly productive' and said they'd likely meet in Saudi Arabia. It was the first publicly announced contact between the Russian leader and a US president since Putin ordered the full-scale invasion of Ukraine in February 2022. Trump abandoned his predecessor Joe Biden's policy of refusing to engage with Russia without Kyiv's involvement. He also reversed long-held US positions supporting the recovery of all Ukraine's occupied lands and ambitions to join NATO, though doubts about the viability of keeping those pledges had grown under Biden. Elon Musk, a Trump adviser, praised the diplomatic blitz. 'This is what competent leadership looks like,' he said on X, alongside video of the Russian delegation arriving in Riyadh. Following a European outcry that the US and Russia were moving forward without any representation from Ukraine, the US clarified that these were exploratory talks, and not the start of full-blown negotiations to end the three-year war. 'I don't think people should view this as something that is about details or moving forward in some kind of negotiation,' Bruce said. Rubio and other US officials have said Ukraine would be part of any negotiation to solve the conflict. Still, European leaders have been shocked by the speed of Trump's push to begin talks with Putin, especially after Vice President JD Vance excoriated European governments on Friday at the Munich Security Conference. 'Even if we're feeling furious we have to keep a clear head,' German Foreign Minister Annalena Baerbock told public broadcaster ZDF. 'We shouldn't make the huge mistake of doing Putin a favor by talking up these talks as more important than they really are. There cannot be a lasting peace if it's not a peace for us Europeans.' After hosting a mini-summit of European allies in Paris on Monday to discuss Ukraine and ways to boost defense spending, French President Emmanuel Macron spoke with Trump and then with Zelenskiy. 'We seek a strong and lasting peace in Ukraine,' Macron said in a post on his X social media account. 'To achieve this, Russia must end its aggression, and this must be accompanied by strong and credible security guarantees for the Ukrainians.' The Trump administration has said it's opposed to deploying US troops as part of any security package for Kyiv, which puts added pressure on Europe to increase military spending. The Paris talks exposed European divisions. While UK Prime Minister Keir Starmer said he'd be ready to deploy peacekeeping forces to Ukraine alongside other nations, Polish Premier Donald Tusk ruled out sending troops. While his country would continue to back Ukraine militarily, Poland also expected allies to help boost defenses on Europe's eastern flank that's most exposed to Russia. 'If I can't defend myself — that's what I told my colleagues today — if the European Union can't defend itself, how can we provide guarantees to others,' Tusk told reporters. 'These would be empty guarantees.' (Updates with talks starting from first paragraph) The Undocumented Workers Who Helped Build Elon Musk's Texas Gigafactory The Unicorn Boom Is Over, and Startups Are Getting Desperate Japan Perfected 7-Eleven. Why Can't the US Get It Right? The NBA Has Fallen Into an Efficiency Trap How Silicon Valley Swung From Obama to Trump ©2025 Bloomberg L.P.
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18-02-2025
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Thai PM Calls for Greater Policy Coordination After Growth Miss
(Bloomberg) -- Thailand's Prime Minister Paetongtarn Shinawatra called for 'closer' cooperation between fiscal and monetary policymakers to shore up growth, a day after data showed Southeast Asia's second-largest economy missed growth target last year. Why Barcelona Bought the Building That Symbolizes Its Housing Crisis Progressive Portland Plots a Comeback Por qué Barcelona compró el edificio que simboliza su crisis inmobiliaria A Filmmaker's Surreal Journey Into His Own Private Winnipeg How to Build a Neurodiverse City The Bank of Thailand and the Finance Ministry should work as a team to support efforts to lift growth rate to 3.5% this year, Paetongtarn told reporters after a cabinet meeting held in southern Songkhla province on Tuesday. Thailand's economy expanded 2.5% last year, missing the median estimate for a 2.7% gain in a Bloomberg News survey, official data showed Monday. The National Economic and Social Development Council predicts growth rate of 2.8% this year, well below the government's target. 'It's important for all parties to join hands,' Paetongtarn said,. 'Only one side can't get the job done.' The premier's comments signal growing impatience of her administration toward a central bank that's repeatedly ignored government calls to cut interest rate. The push for greater alignment of monetary and fiscal policies comes days ahead of the Monetary Policy Committee's rate decision on Feb. 26. While Paetongtarn hasn't publicly called for a rate cut, she once described the BOT's autonomy as 'an obstacle' to government efforts to boost the economy. Her administration has passed a bigger budget and handed out billions of dollars in cash to vulnerable groups to ease living costs, while building political support among voters. The BOT has kept the policy rate steady at 2.25% after a surprise quarter-point cut in October. While some economists now see higher odds of a rate cut next week after the growth miss, others expect the central bank to stay on hold to preserve its policy space to deal with heightened global uncertainties stemming from the US move to slap higher tariffs on imports. 'The lackluster recovery coupled with benign price pressures keep the door open for a rate cut as soon as next week,' said Krystal Tan, an economist at Australia & New Zealand Banking Group. 'Further monetary policy easing is a matter of time.' Declining Investment BOT should consider cutting interest rate to bring inflation back within the central bank's 1% to 3% target range in a sustainable manner, Deputy Finance Minister Paopoom Rojanasakul said Tuesday. But he doesn't expect BOT to slash rate next week. The latest GDP data showed that the private investment contracted due to a lack of funding, especially for small and medium enterprises, Paetongtarn said, asking the central bank and commercial banks to take steps to urgently improve access to lending. Thai private investment fell for a third straight quarter in the October-December period, official data showed. Thailand's economy has lagged the pace of expansion of its neighbors — growing at an average of less than 2% in the past decade — hobbled by the surge in household debt and a manufacturing sector hurting from cheap imports from China. 'If anything, the latest growth print adds urgency for the Bank of Thailand to act,' according to a report from BMI, a division of Fitch Solutions. 'With growth falling short of the central bank's estimate, the likelihood of a 25 bps cut at the upcoming meeting has significantly increased. We forecast that the BOT will lower its policy rate by an additional 50 bps by end-2025, which will support investment activity over the coming quarters.' --With assistance from Lee Miller. The Undocumented Workers Who Helped Build Elon Musk's Texas Gigafactory The Unicorn Boom Is Over, and Startups Are Getting Desperate Japan Perfected 7-Eleven. Why Can't the US Get It Right? The NBA Has Fallen Into an Efficiency Trap How Silicon Valley Swung From Obama to Trump ©2025 Bloomberg L.P. Sign in to access your portfolio
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18-02-2025
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Chinese Convertible Bonds Entice Investors Extending AI Bets
(Bloomberg) -- Chinese investors' zeal for artificial intelligence-related assets fanned by DeepSeek has spread to convertible bonds, sending a benchmark index to its highest in more than two years. Why Barcelona Bought the Building That Symbolizes Its Housing Crisis Progressive Portland Plots a Comeback Por qué Barcelona compró el edificio que simboliza su crisis inmobiliaria A Filmmaker's Surreal Journey Into His Own Private Winnipeg How to Build a Neurodiverse City The CSI Convertible Bond Index has risen 3.3% this year, hitting its highest since August 2022 on Tuesday and tracking gains in the stock benchmark gauge. Shanghai Runda Medical Technology Co. and Thalys Medical Technology Group, two of the companies expected to benefit from AI integration, have seen their convertibles soar more than 22% and 16%, respectively, this year. The gains add to the rally convertible bonds have seen since Beijing announced a slew of stimulus measures for economic growth in September. While CBs' lukewarm start to the year portended a stall in the rally, Chinese startup DeepSeek's potential ignited a tech frenzy in late January and changed the landscape on AI bets in China. 'China convertible bonds are still lucrative even with a rebound in recent months,' Liu Yang, a fund manager at HSBC Jintrust Fund Management Co. said, citing 'reasonable' pricing, low government bond yields and AI's impact on the economy that will be sustained. More anticipated government policy support that may spur a recovery will also propel them higher, he said. A rosier outlook for convertible bonds has rendered something of a haven for fixed-income investors scouring for decent returns in a market with historically low sovereign yields and tepid growth. Mitigated Risk The auspicious start to the year follows a string of messy developments for CBs in 2024, including the first-ever default in the onshore debt market and payment warnings. The CSI CB index hit a three-year low in September, while the years-long property crisis in China also loomed over the broader credit market. But Beijing's stimulus blitz in mid-September that helped revive the stock market also jumpstarted convertibles' rebound that has largely kept up. The CSI CB index ended 2024 about 6% higher, thanks to a rally late in the year. Some convertibles with riskier ratings also may be looking more attractive given the pool of options for high-yield chasers is narrowing in China. Two issuers rated junk last year — D&O Home Collection Group Co. and Zhangjiagang Guangda Special Material Co. — have seen their bonds nearly double from midyear months in 2024. 'China high yield space has shrunk materially in the past few years,' said Christopher Li, head of Asia credit trading desk analysts at BNP Paribas. A limited supply of new issues could also help sustain the CB market momentum, Lv Pin, chief fixed income analyst at Topsperity Securities Co., said. Issuance slumped to 38.4 billion yuan ($5.3 billion) in 2024, the lowest in eight years, as authorities began cracking down on who's qualified to issue such debt. 'Credit risk, which triggered a previous selloff across the board, has been mitigated gradually,' Lv said. The Undocumented Workers Who Helped Build Elon Musk's Texas Gigafactory The Unicorn Boom Is Over, and Startups Are Getting Desperate Japan Perfected 7-Eleven. Why Can't the US Get It Right? The NBA Has Fallen Into an Efficiency Trap How Silicon Valley Swung From Obama to Trump ©2025 Bloomberg L.P.
