A day in the life of managing money through a crisis

And suddenly the whole world changes. There is so much news at the moment it’s almost impossible to keep up. Our fund management priorities are 1) maintain good liquidity 2) make it absolutely certain that we maintain good liquidity and 3) begin to dip a toe into the water.

There will be plenty of time for us to digest the news and give our thoughts in the coming days however this morning I want to give you a bit of an insight on how we are coping in a practical sense, what we are seeing in the market and what we are trading. We are definitely working hard for our clients at the moment.

I would describe the mood amongst the team as a mixture of stress and excitement. Paul Read is probably two parts stress to one-part excitement as his funds are the ones where the risk of large outflows is greatest. Paul Causer is probably the other way round as his outflows are much more predictable. Rhys, as no outflows are possible due to the closed-ended nature of his trusts, and was already pretty defensive, is like a kid in a candy store. But the funds NAVs are falling rapidly and that makes for a sombre and serious backdrop.

We are all trying to get used to working from home. In our team it’s the dealers – principally Dan and John who are bearing the brunt of it. We have a lot of fund managers, a lot of funds and a lot of trades to get done. 

We have started to have a daily team meeting at which the dealers tell us what they are seeing and we try to keep on top of prices. The key issue is liquidity and it is unquestionably poor. Not just in high yield, or investment grade but also in government bonds – including US Treasuries. When you are struggling to trade in the world’s most liquid bond market you know you have a problem.

Yesterday for example the dealers told us that the market had opened up very soft again and accounts were searching for any bids. It feels like in this market you are either seal or a shark. If you are a forced seller you are definitely going to get a bite taken out of you. If you are bidding for paper, you have plenty to chew on and you’re typically starting 5-7 points lower than the screen price. John yesterday was concerned about a further loss of liquidity as the schools close and flow traders are tempted to simply close their laptops. Why would these guys provide liquidity in a market like this when they are just going to get run over? The temptation will be to close the laptop and start Easter early.

We talked a little bit about the overnight news but not very much about credit news. In this market we are all focussed on price and where we may have interest to either buy or sell. We have to do both.

We are all keeping in touch via Skype and Bloomberg chats. It is vital that the dealing instructions are clear and that there are no crossed wires. It is not easy when there are so many things the PMs are looking at and wanting to do in a very volatile market.

Yesterday we had a bit of a focus on AT1 which has quite simply been smashed over the last few days. Bonds are down 40-50 points. ING issued a new AT1 in February which is now marked at 64. Intesa’s new AT1 (Feb launch) is marked at 58! Goodness knows where you could sell it. Barclays’ AT1 is trading in the 60s, having been 110 a few weeks ago.

To give you a sense of bid side liquidity, Julien asked for a price on a very small piece of a regional German lender a couple of days ago and the only price he got back was over 20 points below where it was marked in the portfolio. Needless to say he didn’t trade.

Yesterday we added little pieces of AT1 in different funds. For example, we added a Barclays AT1 at 75 (this was trading at 115 a few weeks ago), some UBS at just below 84 (that bond was also at 115 a little while back) and Credit Agricole at 87 (down from a price of 123).

We were also buying a little bit of investment grade. Mike added some senior Vodafone in the 70s. Senior. At first glance I thought it was the hybrids! In January that bond was 109. This is a sterling long dated corporate and the volatility of the underlying gilt on top of the spread has been incredible. The 2057 gilt this year has gone from 115 to 146 and then in a week has fallen from 146 back to 115 again. Yesterday, everything was getting whacked. Government bonds, IG credit, everything. There was no hiding place. We sold a few IG names as well for Paul Read and achieved prices in the 90s.

We didn’t do anything in high yield yesterday, but we are looking around. When we have bid for paper we have been very aggressive. It doesn’t always work but that is where we start. Paul Causer is in his element in markets like these. He knows the street is long and he has liquidity and he does not take prisoners. “If you want a friend, buy a dog” is his attitude to the street dealers. And this is absolutely right. The liquidity that he has kept for so long has suddenly become very valuable indeed and he is not going to part with it lightly.

Albert, our junior dealer, sent out the ‘end of the day report’ yesterday just towards 6.30pm. It was another very difficult day with dealers describing it as “the worst day so far” and fear reigned supreme. Nonetheless, the outflows weren’t too bad and we picked up some very cheap bonds.

It was clear that the central banks were going to have to step in to stabilize the market and we have seen a huge European Central Bank (ECB) purchase programme announced overnight. This morning BTP futures are indicated at over 7 points higher and I have just seen a Greek government bond offered at nearly 17 points higher(!) than yesterday’s close so that’s a good sign. But we’ll see what the day brings.