* High yield and emerging market debt markets were positive over February
* Trading in the high yield was uneventful, as primary issuance remained muted pushing secondary levels higher
*In Emerging Markets, spreads continued to narrow as investors "hunted for yield"
*Standard Asset Management remains highly selective in terms of new issues for both high yield and emerging market debt
Commenting on the market, John Cleary, CIO, Standard Asset Management, said:
"The High Yield and Emerging Market Debt markets were again positive over February despite yields rising in both the long and short ends of the US Treasury bond curve. Chairman Greenspan's latest pronouncement questioned whether longer-dated yields are justified at current low levels. Core US producer prices also leapt higher underlining the risk of further inflationary pressures. The greenback suffered its biggest fall since October as reports claimed that South Korea was planning to change the composition of it's primarily dollar denominated foreign exchange reserves.
"In Emerging Markets, spreads continued to narrow. The "hunt for yield" remained the key driver underpinning the latest run as money continues flow into the asset class.
"In Latin America, the level of political noise in Brazil increased when the ruling party lost the presidency of the lower house of Congress. The reform agenda could be damaged as a result, although market participants weren't expecting much to happen until after the 2006 presidential elections.
"The market in Turkey continues to monitor the government's progress with the IMF on a new stand by agreement. A major sticking point is the economic incentives offered by the government to several regions and the subsequent fiscal impact it will have. However, Turkey's bonds have performed well. Moody's has upgraded the country's credit outlook noting that the quest for EU membership has led to favorable economic developments.
Meanwhile, South Africa GDP growth moderated in the fourth quarter to 4%. Going forward, growth should continue to be driven by further monetary easing and fiscal stimuli, which should be rand positive. In the short term, we do not expect currency strength to hinder the macro economic outlook.
The news flow has become more mixed in the Philippines in recent weeks as Moody's surprised the market by downgrading the country's rating by two notches to B1. Indonesia is concentrating on the reconstruction effort after the Tsunami disaster, but we are hopeful that there will be progress in reforming the fuel subsidy regime.
In terms of overall positioning, we continue to remain highly selective with respect to new issues in both the high yield and emerging market debt asset classes.
Commenting on the high yield market, Kam Tugnait, Head of High Yield at Standard Asset Management said:
"Trading in the high yield market was uneventful, as primary issuance remained muted pushing secondary levels higher. Just five deals priced with three of those refinancing existing debt. February also saw a couple of defaults in the market, as time finally ran out for Concordia Bus and Tower Automotive. Although neither default was unexpected with our funds having zero exposure to both companies, it is supportive of our theme of the importance of credit selection this year.
The pace of M&A activity continued unabated, with MCI becoming the latest target to be put in play. With both Qwest and Verizon submitting bids, investors are now speculating on which company will be the next target.