PineBridge: Second half of 2011 seen upbeat in high-grade credit; sovereign debt volatility remains

By Andrea Heisinger

New York, July 7 - While volatility will likely remain for the remainder of 2011, the tone in the second half of the year is expected to improve on economic indicators, a source said at the PineBridge Investments media briefing on Thursday.

Robert Vanden Assem, managing director and head of U.S. investment-grade fixed income, said that some things adversely affecting the market in the first half of the year, like the tsunami in Japan, are expected to improve.

"That was a huge generator of volatility," he said. "The impact was more significant than we thought, but we see Japan coming back in the second half."

Other sources of volatility are expected to be around for a while, such as the sovereign crisis in European countries like Greece, Portugal and Ireland.

"There's fear of contagion. It will continue to haunt the market, but we're not going to dive back into a 2008-type crisis."

Liquidity is plentiful in investment-grade-rated companies, and they're looking for places to put cash that are "not always bondholder friendly," Vanden Assem said. This could mean merger and acquisition activity.

There was good momentum in the high-grade market at the top of the year and the threat from higher rates wasn't there, Vanden Assem said.

"We thought the tremendous overhang from the housing market would keep rates low," he said. "We felt it was overall a good year for credit. Fixed income has gained in prominence in the last couple of years."

High-grade credit is expected to commence tightening in the second half of 2011 and inflows have been "quite good" into the asset class, he said. There has been more outflow from high-yield credit.

The yield curve has been steep, especially on shorter-dated paper, and Vanden Assem said that PineBridge "continues to like longer maturities."

A change in the steep yield environment isn't expected until the Federal Reserve takes some sort of action on rates.

"That's not on the horizon at this point," Vanden Assem said.

This steep yield curve is, in part, the market reacting to the debt ceiling negotiations in Congress, and a conclusion to those talks will give the high-grade market a boost, he said.

The upcoming earnings season is expected to be positive.

"We could see a surprise on the upside going forward," Vanden Assem said of company outlooks. "We're looking for things to improve. Economic indicators say this could be the case."

All in all, the second half of 2011 is set to look a lot like the end of 2010 when QE1 was ending and QE2 began.

"It's a liquid environment," he said. "We see growth, but headwinds from sovereigns persist."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.