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Alternative Market Briefing

CTAs give back some of their gains from bonds

Wednesday, July 17, 2019

Laxman Pai, Opalesque Asia:

CTAs which hold large long bond and USD positions gave back some of their earlier gains, Lyxor said in its weekly brief. Most other hedge fund strategies were about flat this week.

With only about 12% of the distressed debt maturing within the next two years, liquidity pressure is likely to remain benign.

Meanwhile, the number of issuers seeking a maturity extension, amendments or waivers to their financial covenants remain tame. Banks' corporate loans, as well as covenants standards, also remain supportive.

The default rates on loans continued to hover around 1.5% year-to-date and are not expected to breach 2% next year. "Our view is that the next distressed cycle might not start before 2021," the report said.

"This is comforting our positive view of credit and deep value market segments. We are O/W in U.S. and European debt. We are also O/W on Credit and EM Macro focused hedge fund strategies, which could both benefit from decent dispersion and reasonable correlations," Lyxor said.

While Special Situation strategies hold few distressed issues, opportunities for stand-alone Distressed strategies remain too tight for now.

Q2 Earnings and Alpha Preview: Limited surprise in store

"The U.S. Q2 earnings season will start next week with diversified banks. Conditions of the quarter have been highly volatile, as suggested by our earnings backdrop tracker," Lyxor said.

Overall, the macro backdrop and business unce......................

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