Fixed Income Market Update

1. The Fed acts in line with its broader mandate and introduces three significant, game changing policies in time for them to have an impact:Unlimited purchases of US government debt and Mortgage Backed Securities.
   Buying of corporate bonds issued by US companies in the secondary market (the ECB is  already doing this for European borrowers and th BoE for UK borrowers).
   Buying in the primary market – underlining the importance of keeping the credit markets moving.
2. The primary bond market is re-opening. As this accelerates, it will provide an opportunity for broader markets to stabilise – but it will be a gradual process and not a straight line. Issuance highlights:Wells Fargo: two part $6bn senior bonds placed successfully – will be added to our buy list.
   P&G: five part $5bn placement 5 yr to 30 yr bonds – will be added to our buy list for corps for RV trades.
   General Dynamics: four part $4 bn placement 5 yr to 30 yr bonds – will be added to our buy list for corps for RV trades.
   Intel: six part $8 bn placement 5 yr to 40 yr bonds – will be added to our buy list for corps for RV trades.
   Coca Cola: five part $5 bn placement 5 yr to 30 yr bonds – will be added to our buy list for corps for RV trades.
   Healthcare Issuance: $3.45 bn for Human and Thermo Fisher.
3. Government bond markets are beginning to stabilise with volatility subsiding. Despite scaremongering, Treasury market volatility did no approach 2008/09 levels – it was less than half. Of course, there will be a swathe of investors looking to switch out of Treasuries into corporate bonds, which is why the central banks are providing buying support.
4. Credit spreads are very gradually narrowing (again, this will not be in a straight line) across the spectrum from subordinated financials through to high grade bonds.Looking at the CDS market, subordinated financial spreads have narrowed as a whole by 1.00% from recent highs. Please note that we were nowhere near the Euro crisis levels.
   Investment grade credit spreads have narrowed 0.30% from recent wides.

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