Ishr Eur Hy Cor Discussion Threads

[kiwi2007] 10/9/2016 01:06

Summer is over. An ugly slide in bond and stock markets to end the first week of September forces us, with a heavy heart, to return to the questions that have dogged the markets for years. Have bond yields at last hit bottom? Are they about to rise?
This is not a new question. Bond yields appeared to make a decisive upward turn as long ago as the summer of 2007. Then, 10-year Treasury yields of more than 5 per cent scared investors to look critically at the overpriced credit they had bought, and precipitated a credit crisis. Bond yields fell again.

This week has seen a similar sharp uptick, from a far lower base. On Friday afternoon in Germany, Bund yields were above zero for the first time in months. Yields rose globally.
Are we still waiting for Godot, is Charlie Brown going to miss the football once more, or is this spasm of concern over higher yields really justified this time?
The standard approach to the question centres on economic data, and on the words of central bankers. The data do little to boost the case for higher rates. The latest ISM supply managers surveys in the US were disappointing, for both services and manufacturing.
The US jobs market is expanding but with scant signs of inflationary pressure — the bond market’s implicit forecast, taken by comparing fixed and inflation-linked yields, is that US inflation will average only 1.5 per cent over the next decade, while European bond markets are braced for an even less inflationary environment. Little case here to fear hawkish central banks, or a sharp rise in bond yields, which generally gain when the economy is expanding.
But listening to central bankers, it is possible to build a case that we have reached a watershed.
The upshot from the Jackson Hole conference last month was that the Federal Reserve wanted us to believe that a rate rise this month was a possibility. Higher rates from the Fed could be expected to radiate through the bond market.
Central bankspeak since then tends to confirm the notion that stimulus has gone as far as it is going to go. This week, the European Central Bank’s Mario Draghi was reluctant to suggest that more asset purchases lay ahead, despite the continuing failure of ECB monetary policy to spark a return to inflation.
Bear in mind that last December he was talking of “monetary dominance” and promising that there was no limit to how much a central bank could use its balance sheet in pursuit of higher inflation. The change in tone is palpable, and meaningful. Even if central banks are not immediately heading for reverse, the age of expanding stimulus looks as though it is over. Add Friday’s comments from Eric Rosengren of the Boston Fed, and you can produce a sharp sell-off — even if those comments were balanced by more dovish comments from Fed colleagues, and even though the market still regards a rate rise later this month as highly unlikely.
A final reason to believe that central banks will change direction comes from the UK. Gilt yields are back where they were at the end of June, a few days after the Brexit referendum. All the fall in gilt yields that followed the Bank of England’s later decision to cut rates has been reversed. The Brexit result has not caused anything like the market disturbance, beyond foreign exchange, that many had feared. This gives the sense that the BoE will go no further, and removes a critical reason for caution by other central banks — the sharp Brexit-led depreciation of the pound did not create a systemic crisis.

But even taking all this into account, we can still say “they would say that, wouldn’t they?” Central banks have to tell markets they might raise rates, for the sake of their credibility. The Fed started this year saying it would hike four times. Why pay attention this time?
The reason is that the market is already behaving as though the low-yielding environment is going away. Look first at the balance between “cyclical” stocks — which do best when the economy is expanding — and defensives, which are less sensitive. Defensives enjoyed a huge rally earlier this year, when fear of recession took hold. Cyclicals are now enjoying a rally, and have outperformed defensives for the year.
Or look at investments that people buy for their yield. High dividend-paying stocks have led the market for several years, but are now seeing a reverse.

Or look at emerging markets. Their shares have rallied of late — a sign of confidence in the economy — but their currencies have been weakening again. That is consistent with a strong economy that prompts a rise in rates from the Federal Reserve, and is otherwise hard to explain.
Then there are banks, which tend to be cyclical. Low or negative yields attack their profitability. Their stock plummeted earlier this year, across the world. Now, they are in recovery mode, outperforming the market — even if on Friday that meant falling less than others, rather than logging gains.
The market is making these moves despite the incentives, from the bond market, to take the opposite position, so this should be taken seriously. If the market is signalling economic strength, which would be a sensible interpretation, then that is something that virtually all of us should welcome. A more alarming interpretation is that defensives and dividend-paying stocks had grown overbought thanks to the desperate “hunt for yield”, and the prospect that bond yields have at last reached a watershed has caused people to rush for the exits.
There would be many benefits from an end to the low yielding environment of the post-crisis era. The pressure on pensions would lift. The same is true for banks. Capital would leave many sectors that have seen over-investment, and begin to go where it is needed.
But there would be pain. The enthusiasm for bonds, and for the sectors that can be treated as bond substitutes, has gone far too far. Removing that froth would hurt. That is the market agenda now that summer is over. And Friday’s sudden sell-off, after months of calm, offered a taste of what it might be like.
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[kiwi2007] 08/9/2016 22:46

Quite pertinent.

Ambrose Evans-Pritchard

8 SEPTEMBER 2016 • 8:22PM

Large parts of the eurozone are slipping deeper into a deflationary trap despite negative interest rates and one trillion euros of quantitative easing by the European Central Bank, leaving the currency bloc with no safety buffer when the next global recession hits.

The ECB is close to exhausting its ammunition and appears increasingly powerless to do more under the legal constraints of its mandate. It has downgraded its growth forecast for the next two years, citing the uncertainties of Brexit, and admitted that it has little chance of meeting its 2pc inflation target this decade, insisting that it is now up to governments to break out of the vicious circle.

Mario Draghi, the ECB’s president, said there are limits to monetary policy and called on the rest of the eurozone to act “much more decisively” to lift growth, with targeted spending on infrastructure. “It is abundantly clear that Draghi is played out and we’re in the terminal phase of QE. The eurozone needs a quantum leap in the nature of policy and it has to come from fiscal policy,” said sovereign bond strategist Nicholas Spiro.

Mr Draghi dashed hopes for an expansion of the ECB’s monthly €80bn (£60bn) programme of bond purchases, and offered no guidance on whether the scheme would be extended after it expires in March 2017. There was not a discussion on the subject.

“The bar to further ECB action is higher than widely assumed,” said Ben May from Oxford Economics.

The eurozone should have reached economic “escape velocity” by now after a potent brew of stimulus starting last year
The March deadline threatens to become a neuralgic issue for markets given the experience of the US Federal Reserve, which suggests that an abrupt stop in QE stimulus amounts to monetary tightening and can be highly disruptive.

The ECB has pulled out all the stops to reflate the economy yet core inflation has been stuck at or below 1pc for three years. Officials are even more worried about the underlying trends. Data collected by Marchel Alexandrovich at Jefferies shows that the percentage of goods and services in the inflation basket currently rising at less than 1pc has crept up to 58pc.

This is a classic precursor to deflation and suggests that the eurozone is acutely vulnerable to any external shock. The figure has spiked to 67pc in Italy, and is now significantly higher that it was when the ECB launched QE last year.

The eurozone should have reached economic “escape velocity” by now after a potent brew of stimulus starting last year: cheap energy, a cheaper euro, €80bn a month of QE, and the end of fiscal austerity.

Yet all the eurozone has achieved is growth of 0.3pc a quarter. France and Italy have both slowed to a standstill.


The euro’s trade-weighted exchange rate has crept up by 7pc since QE began, and it has continued to rise even since the ECB cut interest rates to minus 0.4pc.

“The euro is far stronger than they want, and stronger than the economy deserves, but they don’t know how to weaken it. This is exactly what happened to the Japanese,” said Hans Redeker, currency chief at Morgan Stanley.

Mr Redeker said the eurozone’s current account surplus – now running at €350bn, or 3.3pc of GDP – is feeding the deflationary dynamic. Since European banks are shrinking their balance sheets and repatriating money to meet capital rules, they cannot recycle the eurozone surplus abroad. This is creating a chronic bias towards a stronger currency.

Mr Draghi could resort to even more radical measures but the scope is limited and he is walking through a political minefield
Work by the International Monetary Fund shows that “lowflation” – even short of deflation - causes to a host of debilitating pathologies. It holds down nominal GDP and makes it even harder to work off high-debt ratios.

In theory, Mr Draghi could resort to even more radical measures but the scope is limited and he is walking through a political minefield. Public trust in the ECB has collapsed in several countries and the mood in Germany has turned toxic. The German banking and insurance lobbies have accused the ECB of destroying their business models with negative rates.


Deutsche Bank’s chief economist David Folkerts-Landau said the ECB had gone beyond the point of diminishing returns and was now itself a threat to the eurozone. “Central bankers can lose the plot. When they do, their mistakes can be catastrophic. After seven years of ever-looser monetary policy there is increasing evidence that following the current dogma risks the long-term stability of the eurozone,” he said.

This is unfair to Mr Draghi. The great macroeconomic errors were made long ago from 2010 to 2012 when drastic austerity and premature rate rises pushed the region into a double-dip recession.

Yet ECB officials confess that they may be close to the “economic lower bound”, where any gains to be eked out from more stimulus are outweighed by poisonous side effects.

The ECB network is running out of assets to buy since it can purchase only in proportion to the size of each national economy, a precaution against backdoor bail-outs of insolvent states.

The eurozone no longer seems to have an activist policy. It is treading water and at the mercy of external forces. The danger is that the next global downturn will strike before the currency bloc has escaped its current malaise and before it has built up any defences against a deflationary shock. Mr Draghi will not be able to rescue them a second time.





Didn't realise how short term the duration is (effectively 2.7 years !). Still, acts as a foil against any further fall in GBPound.

[nw99] 26/8/2015 09:49

Last day to buy before XD

[nw99] 13/8/2015 16:20

Just added a chunk here good yield

[nw99] 23/2/2015 09:03

ECB buying bonds starts next month

[nw99] 23/1/2015 08:30

With the ECB helping this could go much higher

[nw99] 20/1/2015 14:55

Thanks SK super buying more

[skinny] 20/1/2015 14:32

It looks like it should be announced next month - .

Click on 'distributions'.

[nw99] 20/1/2015 13:46

When is the next div please

[kiwi2007] 01/11/2011 10:14

Sold the lot this a.m.

[holts] 19/9/2011 17:28

thanks thats is helpful

[skinny] 16/9/2011 11:23

For interest - here is the constituent list.

[kiwi2007] 07/9/2010 13:17

The ETF invests in physical index securities. The Markit iBoxx Euro Liquid High Yield Index offers exposure to the largest and most liquid Euro denominated corporate bonds with sub-investment grade rating. Only bonds with a minimum amount outstanding of €250 million are included in the index.
The maximum time to maturity is 10.5 years and the minimum time to maturity is two years for new bonds to be included in the index; however, bonds already included in the index will not be removed from the index when their maturity drops below two years and will remain until they mature. For diversification purposes the weight of each issuer in the index is capped at 5%.

Inception date 3 September 2010
Base currency EUR
Flat yield 6.92% p.a.
Yield to maturity (%) 6.90%