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Finance


Optimizing revenue in the debt market with investment grade in euros

  • During the credit crisis of 2008, the UBP UBP - High Grade Euro Income strategy presented a better trajectory.
  • The CDS IG index in euros benefits from the same liquidity advantage as the high yield CDS indices.
  • The UBAM - High Grade Euro Income is based on the experience of the UBAM - Global High Yield Solution: a strategy of "only CDS indices" of high yield of 5,000 million dollars.

The worst historical declines -from peaks to their lowest point- were registered during the credit crisis of 2008. Again, UBP's strategy - High Grade Euro Income of UBP - with credit exposure with investment grade in euros through a strategy of derivatives- presented a better trajectory, with a fall of 4.6% compared to 7.7% of the investment grade debt market in euros.

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Derivatives strategy has also obtained better results in the bear markets on an annual basis (in the credit crisis of 2008, in the state debt crisis in euros in 2011 and in the global slowdown / fall in oil prices of 2015). For investors, explain the managers of Union Bancaire Privée (UBP), it is therefore economically equivalent to constitute an investment grade exposure in euros through a bond portfolio.

The best results of the derivatives strategy during the credit crisis in 2008, the euro state debt crisis in 2011 and the global slowdown / oil crisis in 2015 can be explained by the constant liquidity in the CDS investment-grade indexes in all market conditions.

On average, this index registers operations worth around 20,000 million dollars per day with offer / demand differentials of 3 to 5 cents (trading costs).

In addition, the daily volumes operated from the CDS IG index in euros increase in times of stress, for example, up to 30,000 million dollars per day at the beginning of February 2018 during the volatility crisis or at the beginning of March 2018 , with the collapse of the technological values.

In 2008, 2011 and 2015, the differentials of the euro bond market registered worse data than the differentials of the CDS IG indexes in euros due to the lower liquidity in the cash bond market.

And it is that bond spreads with respect to CDS spreads included a premium for illiquidity . This differential premium for illiquidity amounted to 200 basis points in 2008-2009. And it led to a lower yield on bond spreads versus CDS spreads (ie, the base decreased) in 2008, 2011 and 2015.

The CDS IG index in euros benefits from the same liquidity advantage as the high yield CDS indices implemented by the 'Global & Absolute Return Fixed Income' team in its main fund, the UBAM - Global High Yield Solution.

Why invest in UBAM - High Grade Euro Income?

First, for the best long-term results of a GI derivatives strategy in euros compared to the GI bond market in euros: +80 basis points per year and lower volatility and Sharpe ratio than an IG strategy in euros (20% less volatility and Sharpe ratio 45% higher).

In addition, UBP explains, it registers better results in down markets and has a high liquidity in all market conditions through the use of authorized and standardized derivatives.

The UBAM - High Grade Euro Income is based on the experience of the UBAM - Global High Yield Solution: a strategy of "only CDS indices" of high yield of 5,000 million dollars, and constituted from the trajectory of a similar IG derivative in francs. Swiss with active management of interest rates and credit allocations, with about 162 basis points of active added value since July 2016 (since the creation of the strategy, and taking into account that all data is before commissions).


SUBMITTED BY Funds Society

Source: https://www.fundssociety.com/es/noticias/mercados/ubp18-optimizando-los-ingresos-en-el-mercado-investment-grade-en-euros