Mechelany Advisors' BOND PORTFOLIO Mechelany Advisors’ BOND PORTFOLIO was structured in 2020 for clients wanting to benefit from a EURO-based high yielding portfolio using a leverage of one to one and generating 14 % income per annum.
Mechelany Advisors bond portfolio generated a performance of + 36.54 % year to date in 2020, fully benefitting from the massive rally in Investment grade and High Yield credit.
COVID-19 led central banks around the world to buy unprecedented amount pol bonds of any credit type, including Tracker funds, leading to the most impressive decline in yields and spread compression ever seen.
Over the past few months we have taken advantage of the strong performance and massive capital gains to reduce exposure and revert to cas, as our analysis leads us to conclude that bond markets and particularly corporate bonds are now mis-pricing both inflation risks and credit risks.
At 1.97 %, USD Investment Grade bonds trade at the lowest level ever, lower than inflation expectations and at the lowest spread to US Treasuries EVER.
At 4.38 %, USD High Yield Bonds also trade at the lowest absolute level ever and the lowest spread to Treasuries on record.
More than US dollar 18 Trillion of bonds pay negative yields and most of the investment grade inverse yield negative real yields.
Central Banks may be trying to lower the cost of borrowing for corporations and individuals by tweaking the bond markets , but one day the chicken will come back home to roost. That day, we do not want to be invested, hence our recommendation to investors to fly to the safety of cash or Treasury bills for 2021.
In fact, the main risk factor in the global, universe is really interest rates and bonds. A resumption of economic growth and the generalisation of vaccines will lead to rising bond yields and the FED, like the ECB or the BOJ will ultimately have to reverse the course of their bond buying.
As a result we have now sold more than half of our exposure taking significant capital gains in the process.
As per our views on currencies, we have removed our US dollar Hedges in October an are now net long US dollars.
New Asset Allocation
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