Why bond investors should expect some positive surprises

FIXED INCOME

One thing you may often hear us say about fixed income in times of volatility is there will frequently be times when the market will not give you good value for your securities.

But in the end, the borrowers will when they pay you back on the maturity date, assuming of course they do not default beforehand. However, with bonds trading so cheaply, an extraordinary amount of paper has been taken out of the market ‘early’ by borrowers through tenders and exchanges. This is mainly at prices well below par, allowing the borrowers to book bottom-line additions to their capital ratios. So while our mantra is not always strictly true, it can often result in a positive surprise for investors (of course dependant on the entry point of their investment). We estimate €...