Trader profile: Global bonds hang on Greece

Name: Andrew Lake

Position: head of fixed income at Mirabaud Asset Management

Experience: 19 years

Based: London

What asset class and geography are you are focused on?

I am a fixed-income portfolio manager and focus on the entire range of fixed income investments, from government bonds to high yield. Because of the fund strategies that I manage, I have no real constrictions as to what I focus on from a geographical perspective, just what I consider to be the best investment opportunities globally.

What is the outlook for the month ahead?

We will continue to see bouts of volatility, particularly given that yields are so low in most areas of fixed income, except perhaps high-yield. While I think that the move lower in the [German] Bund is over for now and we could see some consolidation and even tightening over the short term, there are a couple of key events that could drive markets either way. With regards to Greece and the IMF payments, there is still a great deal of uncertainty as to the final outcome here. Greece has until the end of this month to come to an agreement, as that is when the ECB deal rolls. The likelihood is that there will be some kind of muddle through, but it will put a damper on risk taking until it is resolved. Attention will also refocus on the US economy and whether the second quarter shows signs of a rebound. If there is further traction on the economy and unemployment, expectations of a first interest rate rise in September will begin to increase. This will put pressure on US Treasury yields and the dollar could also strengthen, which would have some implications for emerging-market volatility if capital flows back to the US.

What are the main risks, either upside or downside, to the outlook?

The upside would be that Greece is finally resolved. This would make risk rally in Europe, and so the upside would be in peripheral bonds and a huge rally in Greece. The downside to the view would be that Greece defaults, which would result in government bonds rallying and risk selling off. It would also put pressure on yields in the GCC, where oil is a big swing factor for sentiment.

What is the best investment at the moment?

We still like some parts of US high yield, particularly the more interest-rate insensitive areas. The note of caution here is that with yields generally low and summer approaching there could be increased volatility as a result of less liquidity.

What was the best investment you were ever involved in?

We owned a US high-yield health care company with a double-digit coupon that was trading well below par. The investment resulted in a series of good quarterly results plus the bonds being called and replaced with bank debt. The total return of the investment was significant over a year’s holding period.

What was the worst?

A US metals company. We bought into a new management team that would lower the cost of production and produce enough free cash flow to redeem the bonds at the next call date. The management team instead continued to miss its targets, and so we exited the position essentially flat to where we purchased the bonds six months earlier but with a small coupon return.

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