Intended for professional clients only
flash expertise december 2009
Opportunities in the short-term bond markets Natixis Obli Opportunités 12 Mois and Natixis Absolute Strategic Bond Faced with the risk of a systemic crisis in the financial system, central banks reacted by aggressively cutting interest rates and implementing highly accommodating monetary policies, resulting in an abundance of liquidity in the market. This generated an unprecedented downturn in money market returns. Now that the recovery is taking shape, there is an asymmetric bias for a rise in interest rates, but the cautious stance maintained by central bankers points to a gradual rise in returns. At the same time, although spreads tightened significantly this year, risk premiums are still in the process of normalising. In 2010, bond management will present a dual challenge: making the most of these spreads and managing the risk of a rate hike.
Market context: low interest rates but high spreads Still low money market rates and extremely cautious central banks against a backdrop of strong uncertainty Central banks’ intervention rates are at historically low levels. With the exit from the recession being confirmed in developed economies, the time seems ripe to return to more orthodox monetary policies and slowly reduce liquidity. Central bankers, however, are showing great caution and exit strategies seem likely to be applied very gradually. Central banks will only put an end to quantitative policies progressively. For the time being, the ECB is continuing to purchase covered bonds and the Fed mortgage-backed securities (MBS). The central banks aim to reduce liquidity by degrees while avoiding a rate hike which could slow or even impede the ongoing recovery. Low inflation expectations give central banks a great deal of leeway. While the ECB is currently satisfied with the level of Eonia, Natixis AM expects intervention rates to stay put in 2010 and Eonia to inch up towards the same level as the intervention rate during the year.
ECB Taux BCE &and taux interbank interbancaires rates 6.0 5.0 4.0
Taux BCE & taux interbancaires
2.0 jan.-07 apr.-07 jul.-07 oct.-07 jan.-08 apr.-08 jul.-08 oct.-08 jan.-09 apr.-09 jul.-09 oct.-09 1.0
Eonia overnight Euribor 6 months
Refi Rate Euribor 3 months
Source: Bloomberg, Barclays Capital – calculations by Natixis AM Courbe des taux €
jan.-07 apr.-07 jul.-07 oct.-07 jan.-08 apr.-08 jul.-08 oct.-08 jan.-09 apr.-09 jul.-09 oct.-09
Eonia overnight Euribor 6 months
Asymmetric risk of a rise in interest rates, but limited With most interest rates close to their historical lows and a far smaller risk of deflation or of a Japanese-type scenario, the probability of a rise in interest rates in 2010 is higher. The risk of a violent rate hike like that seen in 1994 seems very limited, however.
Refi Rate Euribor 3 months
Euro yield curve at 27/11/2009) Courbe(as des taux €
200 300 100 200
l Central banks seem prepared to take their time given the limited inflationary risk, resulting in limited upside risk on the short end of the curve.
l Yield curves are already very steep, both in the short and long ends.
l Issues are increasing due to soaring public deficits, but demand is still vigorous - the focus is on achieving returns and liquidity is abundant.
-300 -200 Aug-92
l The rise in commodities prices, the volume of liquidity in the market and the volatility of prices all argue in favour of a rise in the inflation premium. With inflation forecast at 1.2%, however, this premium should remain small.
Although we expect a limited rise, announcements of strategies for a return to conservative monetary policies will generate more volatility in the markets.
10 y / 2 y Aug-96
30 y / 10 y Aug-98
10yans 10 y / 2Zone y euro: Spread30 / 10inter-pays y 280 320
160 www.am.natixis.com 200
2 y / Euribor 3 months Aug-04
2 y / Euribor 3 months
Source: Bloomberg– calculations by Natixis AM Zone euro: Spread 10 ans inter-pays
Euribor 6 months
Euribor 3 months
Courbe des taux € 300
Spreads have narrowed sharply, but there is still room for tightening 0
Although spreads have narrowed in recent months, the normalisation of risk premiums is not yet finished: -100 premiums in the eurozone are still high in view of fundamentals and the region’s stability; l Country
l Credit -200 premiums are likely to continue decreasing given the marked reduction in net issues, with more potential for financial stocks, in particular subordinated debts; -300
l The Aug-92 liquidityAug-94 premium will continue shrinkAug-02 in the medium term forAug-08 covered bonds, which are once again banks’ preferred financing vehicle, Aug-96 Aug-98 to Aug-00 Aug-04 Aug-06 underpinned by the ECB’s buying programme. The search for returns in a context of globally low interest rates is a key factor in the continued 10 y / 2 y 30 y / 10 y 2 y / Euribor 3 months tightening of spreads.
€ Covered spread Covered &swap swap spread Covered €and &€swap spread
Euro zone: 1010years spreads Zone euro: Spread ans inter-pays 320 280
OAS OAS200 200 180 180 160 160 140 140 120 120 100 100 80 80 60 60 40 40 20 20 0 0
jan.-07 apr.-07 jul.-07
oct.-07 jan.-08 apr.-08 jul.-08 oct.-08 jan.-09 apr.-09 jul.-09 oct.-09
France vs Germany Greece vs Germany
Italy vs Germany Irland vs Germany
Spain vs Germany
feb.- feb.may-mayaug- augnov.- nov.feb.- feb.may-mayaug- augnov.- nov.feb.- feb.may-mayaug- augnov.- nov.feb.- feb.may-mayaug- augnov.- nov.06 06 06 06 06 0606 06 07 0707 0707 0707 0708 0808 0808 0808 0809 0909 0909 0909 09
5 year spread 5 year swapswap spread
Covered (barclays capital index) Covered BondBond indexindex (barclays capital index)
Source: Bloomberg, Barclays Capital – calculations by Natixis AM
What are the best strategies in an environment of low interest rates and high spreads? Evolution relative classes d'actifs obligataires Evolution relative desdes classes d'actifs obligataires Relative yields and bond asset classes
n Flexible money market/bond allocation strategies to make the most of the rise in Eonia and hedge against the rise in interest rates, n Carry strategies on credit, covered bonds, peripheral eurozone debt, n Spread strategies playing the normalisation of risk premiums (financials vs. non financials, covered vs. agencies), n Diversification strategies on inflation-indexed bonds.
pb pb 500 500
450 450 400 400
250 250 200 200 150 150 100 100 50 50
0 0 0 mar-99 mar-00 mar-01 mar-02 mar-03 mar-04 mar-05 mar-06 mar-07 mar-08 mar-09 mar-99 mar-00 mar-01 mar-02 mar-03 mar-04 mar-05 mar-06 mar-07 mar-08 mar-09 MTS Global spread - Barclays capital EoniaEonia Euro Euro MTS Global creditcredit spread - Barclays capital indexindex
Source: Bloomberg, Barclays Capital – calculations by Natixis AM Performance target (I share) The risk-return profile of the bond investments is higher than the risk profile of the funds with a money market classification
Natixis Souverains Euro 1-3
Natixis Absolute Swap Arbitrage
Eonia +200 bps
Natixis Obli Opportunités 12 M
Eonia +75 bps
Two of our funds seem particularly well suited to the market context, Natixis Obli Opportunités 12 Mois and Natixis Absolute Strategic Bond, given their dynamic allocation between bond and money market assets. Through an investment in quality bond and money market securities, they implement the main strategies in the fixed income markets and make it possible to benefit from a bond investment with a short horizon and a limited risk profile.
Natixis Absolute Quant Bond 18M
Eonia +100 bps
Cash money market line-up
Tréso money market line-up
Performance relative to Eonia (left scale)
Insertion Emplois Sérénité
Natixis Absolute Strategic Bond
Performance relative to Euro MTS 1-3 (rigth scale)
Euro MTS 1-3
In an environment rich of opportunities in the bond markets, Natixis Asset Management offers a selection of short-term bond funds enabling investors to benefit from potential outperformance compared with short-term interest rates, in return for a longer investment horizon than that of money market funds.
Natixis Asset Management SRI line-up
The Euro MTS 1-3 positioning was carried out on 09/10/09. This positioning may vary relative to Eonia as a function of movements in these two rates.
flash expertise Natixis Obli Opportunités 12 Mois Natixis Obli Opportunités 12 Mois is a bond investment aiming at tapping the sources of value added of fixed income instruments while minimising the risk of a decline in net asset value over a one-year horizon.
A opportunistic double allocation In order to make the most of different bond market configurations, the investment team applies an opportunistic strategy based on a double allocation:
Interest rate evolution
• A dynamic compartment with an allocation split between bond* and money market* securities, denominated in euros and issued by private and public issuers (guaranteed or not by the OECD and EEA states). This compartment benefits from an active 1-3 year bond management based on different sources of value added: active management of the duration, dynamic allocation on the yield curve and selection of quality countries and securities. The modified duration of this Credit spread evolution portion may accordingly range from 0, when the portion is monetarized, to 4, Widening of credit spreads Narrowing of credit spreads when the investment team implements a maximum exposure to interest rates. Overweight Dynamic compartment Overweight Carry compartment Increase of • An allocation between the dynamic interest rate Overweight Money-Market compartment and the carry portion in Overweight Dynamic compartment Overweight Carry compartment order to capture all scenarios associated Decrease of with movements in interest rates and credit spreads. The carry compartment comprises covered bonds* and guaranteed debts of eurozone states*, making it possible to benefit from the yield premiums contributed by covered bonds.
Overweight Bonds Allocation between Dynamic compartment / Carry compartment Allocation between Money-Market / Bonds in the dynamic compartment
* Rated as follows: - for securities of the money-market type (with maturity of less than 1 year): between A+ and A1 according to S&P, P1 according to Moody's - for securities of the bond type (with maturity of more than 1 year): between AAA and AA- according to S&P, between Aaa and Aa3 according to Moody's (except supranational issuers or OECD member states)
Natixis Absolute Strategic Bond Natixis Absolute Strategic Bond seeks to take advantage of all configurations in the bond market and to generate outperformance compared with the risk-free rate, over a 9-12 month investment horizon.
An opportunistic approach in all bond asset classes In order to make the most of different bond market configurations, the investment team applies an opportunistic strategy based on a double allocation, as well as implementing strategies in bond sub-classes: • A dynamic allocation split between bond* and money market*securities, mainly denominated in euros. This compartment benefits from an active bond management based on different sources of value added: active management of duration, dynamic allocation on the yield curve and selection of quality countries and securities. • An allocation within bond asset classes: government bonds, bonds issued by agencies, supranational organisations* and government-guaranteed bonds*, credit securities with a minimum rating of BBB, diversification (OECD, convertible bonds, inflation-indexed bonds and currencies).
An opportunistic allocation
Bonds of private issuers
International issuers denominated in euros
Supranational Agencies Government - guaranteed bonds
• Strategies within each bond asset class: In addition to the opportunistic double allocation between money market and bond assets and then within the bond asset class, the investment team also sets up different strategies within the asset sub-classes.
* Rated as follows: - for securities of the money-market type: between A1+ and A2 according to S&P or between P1 and P2 according to Moody's; - for securities of the bond type: between one and three years: from AAA to BBB according to S&P or from Aaa to Baa2 according to Moody’s; between three and five years: from AAA to A- and from Aaa to A3 respectively; - for supranational or OECD government securities in excess of five years: from AAA to AA or from Aaa to Aa2
flash expertise Olivier de LAROUZIERE Portfolio Manager of Natixis Obli Opportunités 12 Mois, Olivier de Larouzière is also Head of the “Interest rates and foreign exchange” team Olivier de Larouzière joined Natixis Asset Management in 2003 as Head of Euro Aggregate management team. In 2005 he became Head of the Euro Government and Aggregate management team. Since 2007 he has been working as Head of the Govies and Inflation team within Natixis Asset Management. Olivier de Larouzière began his career in 1994 at Ecureuil Gestion, the fund management arm of the French Savings Bank. He successively managed money market, european and global fixed income funds. He joined BNP-Paribas in 1998 as a fixed income proprietary Trader and then Credit Lyonnais Asset Management in 2001 as a senior fixed income portfolio manager. Olivier de Larouzière holds a diploma of Advanced Studies in Mathematics Applied to Economic Studies from the University of Paris IX - Dauphine. He has an experience of 15 years in asset management and has been working for our company for more than 6 years
For further information n Find the Fund Product Profiles of Natixis Obli Opportunités 12 Mois and of Natixis Absolute Strategic Bond under “Our Products” on our website at www.am.natixis.com
Olivier VIETTI Portfolio Manager of Natixis Absolute Strategic Bond, Olivier Vietti is a Fixed Income Portfolio Manager within the Absolute Return Multi-Strategy team Olivier started his career at Natixis Asset Management in June 2004 as a Euro Fixed Income portfolio manager assistant. Then he became a Fixed Income fund manager within the Absolute Return Multi-Strategy team of Natixis Asset Management. Olivier held a DESS/Master in finance from Cergy Pontoise University. He has an experience of 5 years and has been working in our company for 5 years.
Natixis Asset Management: a fixed-income expert Golden Trophy - Best range of international bonds funds- Trophées des meilleurs SICAV & Fonds - Le Revenu 2009 May 2009 Natixis Asset Management awarded for the performance of its bond range over 3 years in the category “International bonds funds”, “network banks"(1øøø)
Best Bond Group - Lipper Fund Awards 2009 (France) March 2009 Lipper gives Natixis Asset Management top ranking in the generalist category for the performance of its range of funds over 3 years(2) 1st prize Large Bond Group - La Tribune - Morningstar “Victoires des SICAV” Awards 2009 March 2009 France’s leading business and financial newspaper, La Tribune, gives Natixis Asset Management top ranking for the performance of its range of funds in the large bond group category over 5 years(3) (1) Category "Network banks" with European funds registered for sale in France and rated by EuroPerformance for at least three years as of 03/31/2009 (Source: Le Revenu). (2) Companies with funds registered for sale in France and rated by Lipper for at least three years as of 12/31/2008 (Source: Lipper Thomson Reuters). (3) Companies with more than 15 bond funds registered for sale in France and rated by Morningstar for at least five years as of 06/30/2008 (Source: Morningstar).
Written on 08/12/09
Disclaimer This document is intended for professional clients. It may not be used for any purpose other than that for which it was intended and may not be reproduced, disseminated or disclosed to third parties, whether in part on in whole without prior authorization in writing from Natixis Asset Management. No information contained in this document may be interpreted as being contractual in any way. This document is produced purely for information purposes. It is a presentation created and prepared by Natixis Asset Management based on sources considered to be reliable. Natixis Asset Management reserves the right to change the information in this document at any time without notice, and in particular anything relating to the description of the investment process, which under no circumstances constitutes a commitment from Natixis Asset Management. Natixis Asset Management will not be held liable for any decision taken or not taken on the basis of the information in this document, nor for any use that a third party might make of the information. The Fund is authorized for sale in France and possibly in other countries where the sale is not contrary to local legislation. Prior to any investment, investors must check that they are legally authorized to invest in a Fund. The risks and fees connected to investment in a Fund are described in the relevant prospectus. The prospectus and periodic documents are available from Natixis Asset Management upon request. The prospectus must be given to the investor prior to the subscription. Under Natixis Asset Management’s social responsibility policy, and in accordance with the treaties signed by the French government, the funds directly managed by Natixis Asset Management do not invest in any company that manufactures sells or stocks anti-personnel mines and cluster bombs.