One of the major themes we have been talking to investors about recently has been the changes wrought since the onset of the global financial crisis a decade ago. It is often forgotten, for example, that interest rates in the UK stood at 5.50% at the end of 2007, that 10 year UK and Greek government bond yields were nigh on identical and that the Bank of England had a balance sheet of just £77 billion. But what did the sterling corporate bond market look like?
Outside of ‘vanilla’ fixed income securities – your standard corporate and government bonds – there exists a vast array of options for investors, most of which are little discussed. These range from relatively simple floating rate notes, to exotic products with various convertible or re-set features, which can be triggered in a number of scenarios. One area that has done particularly well in 2017 has been hybrid corporate bonds.
The 9 August 2017 was regarded by many as the 10 year anniversary of the global financial crisis. The European Central Bank (ECB) and the US Federal Reserve (Fed) ploughed c. £45 billion into financial markets that day as the credit crunch began. Astonishingly, the UK base rate on that day stood at 5.75%. Since the 5 March 2009, it has only ever been 0.50% or lower.
Up until mid-June, UK gilts had performed robustly from a total return perspective in 2017, as 10 year yields edged down from 1.24% at the start of the year to hit 0.93% on the 14 June. This translated into a gain of 2.84% from the FTSE Gilts All Stocks Index over the same period. However, there has been a change in tone from developed market central banks of late.