Katana sees relative value survive the bond market convulsions
Now an independent firm outside ING, Katana is upgrading its algos and scanning more bonds for correlation trades between pairs not normally linked.
As June drew to a close, with equities selling off on fears of a second wave in China and increasing cases in the US and Germany, the new supply of investment-grade and high-yield corporate bonds was slowing down sharply, after the rush to issue into the great rally driven by central bank buying.
Analysts were sending notes of caution.
Matthew James, head of global spread products research at Citi, told investors: “We remain positively inclined across spread products as we move into summer, given the tail-end of the QE wave. However, markets could get choppy as liquidity drops into the holidays.”
Suggesting that the surge of central bank liquidity has crested, James said: “We believe that investors should take advantage over the next few weeks to tidy up portfolios – lighten up on less-confident positions, bolster liquidity buffers and tactically add to core views.”
It’s not just overall credit spreads that have been extraordinarily volatile during the past four months. So too have movements in relative value between pairs of bonds that typically trade within a range of each other.