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Anfield Fixed Income Update: August 2022



During a period where good news is seemingly bad news for the markets, and equity and fixed income markets cannot seem to find a clear direction, we look back on what has happened and what this could mean for the near-term future. Specifically, on the fixed income side, domestic investment grade (IG) and high yield (HY) bonds saw one of the best total return months since 1999 this past July. For IG credit, according to CreditSights, July 2022 now ranks as the 13th best monthly total return performance since 1999 as falling long-end yields worked together with spread compression to generate total returns of +2.9%, marking the best monthly performance in 2022 and the best monthly performance since July 2020 (+3.2%). For HY credit, according to CreditSights, July (+6.0%) ranks even higher and was the 7th best monthly total return performance since 1999 and the strongest month of return since October 2011. Both strong performances were aided by numerous items crucial to fixed income performance, as we will explore further. Firstly, falling volatility in rates (MOVE index down 10.8%) and equities (VIX down 24.2%) worked with our expectation that the US Fed is getting closer to their terminal rate for the current hiking cycle after implementing another mega 75bps hike at the end of July. On the downside (remember, good news is bad news and bad news is good news) economic fundamentals showed more signs of growth erosion as the advance reading of 2Q 22 GDP came in negative for the 2nd consecutive quarter while a range of other metrics, including Services PMI, came in below expectations.


Looking forward, analysts appear bullish as CreditSights (CS) points out that in the months following strong IG total returns, the median total return is +1.0% with 14 bps of spread compression and an 11bps decline in yields, while in those months following strong HY total returns, the median total return is +1.5% with 27bps of spread compression and a 32bps decline in yields. While past returns are in no way indicative of future results, the market appears primed to sweep into the anticipated HY surge as the end of July saw funds which invest in HY bonds take in cash after back-to-back weeks of outflows, registering an influx totaling $4.83bn for the week ended July 27th, the biggest inflow in over 2 years. (Source: CreditSights, Bloomberg)


Current Fixed Income Positioning


Universal Fixed Income Strategies: Benchmark agnostic and line-item bond security portfolios looking to highlight our best ideas in bond space


Dynamic Bond strategy: Benchmark aware to the Bloomberg Barclay’s Aggregate Index and is a top-down macro-focused ETF of ETFs.




Forecasts



“Anfield Affection Gauges”: What fixed income sectors & exposures do we like, and what do we dislike?






Disclosures:


Current Fixed Income Positioning Definitions:

  • Duration represents the current value for each of the funds and indices noted

  • Curve represents where each of the funds and indices are positioned on the yield curve

  • Government represents the percentage allocated to Government bonds within the funds and indices

  • Credit represents the percentage allocated to Investment Grade and High Yield Credit within the funds and indices

  • MBS represents the percentage allocated to Mortgage-Backed Securities within the funds and indices

  • Yield (YTM) represents the Yield to Maturity of the funds and indices

Anfield Capital Management, LLC is a registered investment adviser with the SEC. This report is for informational purposes only and does not constitute advice, an offer to sell, or a solicitation of an offer to buy any securities and may not be relied upon in connection with any offer or sale of securities. The contents of this report should not be relied upon in making investment decisions. The information and statistical data contained herein have been obtained from sources that we believe to be reliable but in no way are warranted by us as to accuracy or completeness. The accompanying performance statistics are based upon historical performance and are not indicative of future performance. The types of investments discussed do not represent all the securities purchased, sold, or recommended for clients. You should not assume that investments in the securities or models identified and discussed were or will be profitable. Results of the models do not reflect the performance result of any one client. Not all clients have experienced this specific return level. Actual client returns may differ materially from the performance of the models due to actual fees incurred by clients, timing of cash flows, or client restrictions (e.g., restrictions on specific securities, industries, or types of securities). Clients who invested in the models after our initial trade date for any security may have experienced materially different performance and may have lost money.


While many of the thoughts expressed in this report are stated in a factual manner, the discussion reflects only Anfield Capital’s beliefs about the financial markets in which it invests portfolio assets following the models. The descriptions herein, are in summary form, are incomplete and do not include all the information necessary to evaluate an investment in any model. The models described represents current intentions. However, Anfield Capital may pursue any objectives, employ any techniques, or purchase any type of financial investment that it considers appropriate for the models and in the best interests of its clients.


Any prior investment results or returns are presented for illustrative purposes only and are not indicative of future returns. An investment in the models presented herein involves a high degree of risk and could result in the loss of your entire investment. Investments with Anfield are subject to significant risks, which include, but are not limited to, the risk of loss of principal, lack of diversification, volatility, and market disruptions. Prospective investors are referred to our Form ADV 2A for a more detailed discussion of risk factors, which can be (a) found on the SEC's Investment Adviser Public Disclosure website at: http://adviserinfo.sec.gov, or (b) provided upon request. You should not construe the contents of this report as legal, tax, investment, or other advice. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained herein by Anfield Capital, its employees and no liability is accepted by such persons for the accuracy of completeness of any such information or opinions. Registration as an investment adviser does not imply a certain level of skill or training and no inference to the contrary should be made.

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