How does this sell-off compare to others you’ve previously managed money through?
The speed of the sell-off this time was faster than any we had seen before, however this reflected the unusual circumstances and the shock of the events that unfolded. During the credit crisis, markets had months to get used to the unfolding uncertainty with Lehman’s collapse being just a step further in the same direction. The shutting down of significant economies in short order was unprecedented, and it would have been difficult to model beforehand. In addition, the greater use of fiscal support for economies was also different.
What have been the biggest contributors and detractors to performance over the period?
Our developed-market government bonds were the best performers during the crisis while our modest exposure to high-yield corporate bonds and emerging-market sovereigns were the worst.
How has the yield of the fund been affected by the sell-off?
The yield of the BNY Mellon Global Dynamic Bond Fund has risen from 1.8% to 2.4%.
Which sovereigns are you particularly positive or negative on and why?
We like the defensive qualities of US Treasuries while, at the same time, we are searching for opportunities in selective emerging-market sovereigns, such as Mexico, and other developed markets like Italy, Spain and Norway.
How have you managed duration on the fund during the sell-off?
The duration has remained around four years, although the make-up of that duration has changed owing to the portfolio shifting from inflation-linked government bonds to investment-grade credit.
What do you think the likelihood is the UK or US will introduce negative interest rates?
We still believe this is a last resort. The further reliance on fiscal support suggests that the make-up of intervention has changed to a mixture of monetary and fiscal policy. From here, we would expect to see more fiscal support if economies do not recover and for central banks to resort to yield curve management, rather than negative interest rates. This is the process of keeping interest rates low along the curve from cash all the way to long-dated bonds.
What’s your outlook on inflation?
Deflation is likely to be the greatest influence for the next 12 months as economies will be slow to recover and unemployment will remain high. Looking further ahead, we may see pockets of inflation where supply doesn’t match demand; this will be difficult to maintain however, unless there is a corresponding increase in wages.
How do you think remote working has affected the functioning of the bond markets?
Initially, the shift to the work-from-home environment exacerbated the poor liquidity we experienced in March; as dealing rooms adjusted to the ‘new normal’, this dissipated. The markets are now functioning well, as evidenced by the record levels of issuance witnessed in April and May.
How do you find managing money from home?
I believe there are both positives and negatives. There is a lot more time to research markets and focus on the ever-changing economic environment. This said, we miss the easy interaction that comes from being in one place with your colleagues, and this type of interaction now has to be managed. For example, we now have daily team meetings whereas before we would have them just once a week.
What have you been reading during lockdown?
I have been researching past pandemics and post-war periods. Following debt rising to war-time levels, there are two ways that economies can exit Covid-19: either slowly through financial repression (Britain after World War I) or through significant rises in inflation (Germany from 1921 to 1923, or to a lesser extent, after World War II). I believe it is vital to understand what is possible – given we manage our portfolios with a long-term perspective.
I have also been researching how autos and aircraft industries are adapting. Will car-scrappage schemes be used to accelerate the shift to electric vehicles, and will the new- found use of video meetings reduce my travels around the world to see clients?
In terms of fiction, I’m currently reading Churchill’s Gold by Ken Follet.
Do you have any working from home tips?
I only have the well-known tips but I believe they’re very important:
· don’t forget to move around
· take regular breaks
· communicate with your teams often, but also with people outside of your team
· call people on the phone for a catch-up, and
· consider putting a time lock on the fridge!
