Market Insights

Compiled from Investment Committee Notes

After two consecutive difficult years for bonds, the final quarter of 2023 provided much-welcomed relief for fixed income investors. The market’s soft or no landing expectation was bolstered by encouraging inflation data, optimistic central bank rhetoric, and a resilient economy, leading to a notable comeback for credit.

Given these big market moves, we believe the market may be getting ahead of itself, and it is still crucial to hedge against the market’s overly optimistic outlook. As a result, we maintain a somewhat conservative positioning, being mindful of the strength of the consumer, particularly in Canada, and we remain cautious on some sectors that may be exposed if a soft landing is not achieved. Nevertheless, we continue to believe corporate credit in developed markets will be among the best risk-return opportunities over the coming quarters, especially as cash balances are redeployed in the market.

During Q4, our high conviction holding in telecom issuer, Rogers Communications, was a particularly rewarding return contributor across the capital structure with a great deal of exposure outside the Canadian market. Through our longstanding dealer relationships and strong credit work by our team, we were able to participate in Rogers’ recent deal in late 2023, with both our existing bonds and the new issues outperforming across geographies. Credit spread compression in their subordinate hybrid securities enabled us to capitalize significant value from this high conviction issuer, and with the current yield to call being around 7%, there’s more value to come.

As we enter this new year, we continue to seek attractive, well-priced deals, particularly in the Financials sector. We are also seeing attractive opportunities to take advantage of cross-market mispricing and relative value. We believe this environment is particularly good for investing in floating-rate bonds (FRNs) given elevated yield levels and our belief that the speed and magnitude of policy easing appear aggressive compared to fundamentals.

Important Information

The information herein is presented by RP Investment Advisors LP (“RPIA”) and is for informational purposes only. It does not provide financial, legal, accounting, tax, investment, or other advice and should not be acted or relied upon in that regard without seeking the appropriate professional advice. The information is drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does RPIA assume any responsibility or liability whatsoever. The information provided may be subject to change and RPIA does not undertake any obligation to communicate revisions or updates to the information presented. Unless otherwise stated, the source for all information is RPIA. The information presented does not form the basis of any offer or solicitation for the purchase or sale of securities. Products and services of RPIA are only available in jurisdictions where they may be lawfully offered and to investors who qualify under applicable regulation. “Forward-Looking” statements are based on assumptions made by RPIA regarding its opinion and investment strategies in certain market conditions and are subject to a number of mitigating factors. Economic and market conditions may change, which may materially impact actual future events and as a result RPIA’s views, the success of RPIA’s intended strategies as well as its actual course of conduct.