Asian high yield outlook Managing Asian high yield during the COVID-19 liquidity crisis

Ross Dilkes, Portfolio Manager for the UBS Asian high yield strategy discusses the outlook for Asian high yield and how he is steering the portfolio as liquidity remains tight.

14 May 2020

Liquidity in the Asian high yield bond market

Liquidity conditions in the Asian High Yield market remain affected by the recent volatility. Generically bid offers are still wider than pre-crisis, however we have seen liquidity improve considerably in recent weeks.

Given credit divergence over the last few months, bid side liquidity remains constrained in weaker, lower rated segments of the market where sentiment still remains cautious.

Elsewhere volumes have recovered and deploying capital hasn’t been an issue. Asia Investment Grade markets have seen primary activity pick up in recent weeks and we expect High Yield issuance to resume in May which will further normalise market conditions and improve liquidity options for deploying capital.

UBS Asian high yield strategy – not affected by lack of liquidity in market

Within the Asian High Yield strategy, we have not had any liquidity issues throughout the COVID-19 crisis and hence no adverse impact on performance from lack of liquidity.

In anticipation of a more difficult and volatile market environment, we had begun to proactively position the strategy more defensively on credits, and with an overweight in duration from the middle of Q1, to benefit from the yield compression in sovereigns where central bank policy action is more likely. With the recent policy cuts and rates close to the zero bound, we have cut back on our duration position accordingly and are now slightly underweight duration vs the benchmark.

In addition, we have significantly increased our cash position to navigate current liquidity conditions in the market and preserve our flexibility to opportunistically invest into relatively cheaper credit names when we feel comfortable to shift back into higher credit exposure again.

Maintaining sufficient liquidity and focusing on quality assets remain our priorities in managing the portfolio during this period.

Ross Dilkes

Portfolio Manager
UBS Asian high yield strategy

Ross Dilkes is a portfolio manager with the Pan Asia fixed income team and has strategy responsibility for selection of corporate issues in Pan Asian portfolios. Ross also contributes to the development of sector and industry allocation strategies across Pan Asia portfolios.

Ross joined UBS Asset Management in December 2005 as a credit analyst within the European Credit Research team based in London.

Ross transferred to the APAC Fixed Income team located in Hong Kong in 2009 where he was responsible for credit research coverage of APAC investment grade and high yield issuers.

Prior to joining UBS Asset Management, Ross worked for Debtwire in London as an analyst covering high yield, distressed debt, leveraged finance and restructuring situations.

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