3 Things the European Investment-Grade Fixed Income Team Talked About Last Week

1848989881. “May You Live in Interesting Times” 

Reputed to be an ancient Chinese curse, “interesting” in the above phrase was meant to signify dangerous or turbulent times. Fingers were pointing at China last week as being responsible for market volatility due to the significant fall in the Chinese equity market and surprise devaluation of the Renminbi. We’ll leave comment on the equity market to our Emerging Market colleagues, but we will make two points on the currency. Firstly, we’ve seen a 3% devaluation so far, and 1-year forward rates are suggesting another 5% within 12 months. But the market is likely to press for a more significant devaluation than 5%, so the reaction of the Chinese authorities will be interesting. Secondly, we understand that the Chinese authorities have been intervening to stabilise the currency to the tune of about US$10bn a day. That intervention is financed by liquidating FX reserves, most of which are invested in bonds. Should intervention continue, we may see the People’s Bank of China becoming a forced seller of bonds, putting upward pressure on G-7 investment grade bond yields. Asian central banks have long been fans of French government bonds, seeing them as a higher-yielding proxy for German Bunds. It will be interesting to watch the spread between French and German government bonds in coming weeks.

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How Will Developments in China Affect U.S. Investors?

china_crisisOn August 11, the Chinese government devalued the renminbi (RMB) for the first time in 22 years. Resulting global market volatility has been significant – but what implications might this turmoil have for the U.S. equity market?

Our research indicates that historically, there has been no correlation between the Chinese equity market and the U.S. equity market. In looking at 11 Shanghai bull and bear markets from 1993 to 2014, our analysis reveals that in bear markets the Shanghai stock exchange sold off 19.1% on average, but the S&P 500 Index actually gained 3.5%.

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Summer Turmoil: No Reason to Panic, But Keep A Defensive Stance

What’s Happening In Global Financial Markets?

ThinkstockPhotos-466013294The recent weakness of Chinese equity markets is spreading into risk assets around the world. Developed Markets, initially resilient to Renmbimbi devaluation, are now pricing in the deflationary effects of China’s slowdown on Emerging Markets, already fragile, and more broadly, on the global economy. Continue reading

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A Multi-Asset Response to Rising Bond Yields

Balanced Strategies Desk

Reema Desai looks at three ways the team believes alpha can be generated against an environment of rising yields. Reema also outlines what investors might consider going into Q3 2015

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Greece at Centre Stage: Can we Expect Market Normalisation?

European Investment Grade Credit

Markets have been erratic during the first half of the year, as economic volatility has continued to the end of Q2. Alessandro D’Erme explores the potential market changes in this environment and how they could impact the asset class.

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