Market Insights

The end of QE2 is an important event for the US and global financial markets. As the global economy braces itself for the Fed’s exit strategy from the highly accommodative monetary policies that have been in place since the start of the financial crisis in 2008, the uncertainty has led some investors to adopt more cautious positioning. Is that defensive stance justified?

Over the past two years, the global high yield bond and leveraged loan markets have rallied faster than most investors expected, and 2011 is off to a swift start; the high yield market has returned more than 3.5% through February. The latest default cycle has been the quickest on record, rising from 5% to peak and returning to 5% in less than two years, compared to prior default cycles, which have lasted more than three years.

The commercial real estate recession that commenced in late 2007 is in the process of bottoming; values appear to be approaching their lows. We do not expect to see material value appreciation in the short term, because commercial real estate fundamentals tend to lag the overall economy by 12 to 18 months. Investment opportunities exist, however, for both equity and debt investors. This commentary explores the opportunities and risks in detail.

Questions around European Union viability, the Gaza blockade, imminent financial reform, a China slowdown and the Gulf oil spill are completely consuming all forms of mass communication.

Aviva Investors has recently been published in a supplement on Stable Value Funds, which was inserted into the April 19 issue of Pensions & Investments and distributed in print to a circulation of 50,000 investment professionals and online to 80,000 registered users. The supplement featured quotes from Tim Reimer, Senior Vice President of Alternative Strategies for Aviva Investors North America, and a full page advertisement.

Unprecedented global monetary and fiscal stimulus actions have helped pull the North American economy out of the deep recession and have systematically stabilized the financial markets.

by Jeremy Hughes, CFA, High Yield Portfolio Manager, Aviva Investors North America, Inc.

History suggests that the days of outsized relative returns for CCC bonds compared to BB bonds are numbered. It will require alpha via careful security selection to generate superior performance in CCC securities in the future, not merely an effort to load up on beta via any CCC issue. The recent outsized returns in CCC and below rated bonds are pointing towards more compelling valuations in particularly BB and also B rated bonds.

by Todd Youngberg, CFA, Senior Vice President, Head of High Yield, Aviva Investors North America, Inc.

For certain institutional fixed income strategies, an index benchmark is less effective than a peer group when measuring the added value. We recommend using an institutional peer group rather than an index for a high yield bond benchmark.

by Todd Youngberg, CFA, Senior Vice President of High Yield, Aviva Investors North America, Inc.

There was a systemic meltdown in the global credit markets in the fourth quarter of 2008, but beta has returned with a vengeance in 2009.

by Todd Youngberg, CFA, Senior Vice President of High Yield, Aviva Investors North America, Inc.

The high yield bond market has raced out of the gates in 2009 with strong year-to-date performance. In fact, high yield bonds have outperformed nearly all major asset classes through mid-April. In our global high yield bond market outlook published January 12, titled "The Power of the Coupon," we upgraded our view for high yield bond allocations from marketweight to moderate overweight. While spreads have tightened 225 basis points – from +1,677 at year end to +1,452 on April 15 – we believe the argument for an overweight in high yield bonds remains strongly intact. With a market yield of 17.6% and an average price of $63, the total return potential from both coupon and price return continues to be very attractive.