Chart of the Week
In 2023, European bonds delivered positive performance across the board. The high yield segment outperformed its counterparts with an average return of 12.08%. Investment grade followed with 8.01% and government bonds returned 6.71% on average. In subordinated financial debt, AT1 bonds gained 5.32% and offset the nosedive prompted by Credit Suisse’s mid-March collapse.
OUR ANALYSIS
Fixed Income market performance in 2023 was boosted by a sharp drop in yields in November and December along with falling spread levels. High yield spreads, for example, narrowed by 191 bps (1.91%), from 530 bps at the end of 2022 to 339 bps at the end of 2023. 2023 came in stark contrast to 2022, when performance across all bond segments was pushed negative by steep rate hikes. In 2022, government bonds slumped 18%, corporate investment grade shed 14%, AT1s fell 13% and high yield lost 11%. Over the course of 2023, high yield bonds managed to offset their decline and they have further to go in 2024. 2023 was also the year when AT1 bonds came back from the brink. The wipeout of CHF 16 billion of Credit Suisse subordinated debt in March threw the segment into chaos. Yet fast action from the Swiss authorities to draw a line under the first quarter’s market stress enabled AT1s to bounce back and their performance in 2023 is not far behind that of government bonds.
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Written on January 12, 2024. This is not an investment advice. Opinions subject to change.
See also: https://latribune.lazardfreresgestion.fr/en/equity-markets-recap-2023-a-year-of-surprises/
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