Noelle Cazalis, manager of the Rathbone Ethical Bond fund
Central bank intervention
There have been huge swings in credit market prices over the past week and volatility has hit levels last seen in 2008 – even UK two-year yields turned negative.
Within financials, we tend to have more exposure to higher-yielding subordinated insurance, which suffered price falls last week.
These are merely mark-to-market moves and fundamentally these are businesses with strong solvency and capital.
The co-ordinated stimulus package from the Bank of England and the UK Government was not enough to lead to a contraction in spreads, but the European Central Bank has followed suit, announcing a number of accommodative measures, which should help keep businesses supported.
While we cannot forecast the outcome of Covid-19 and the oil price war, and things might get worse before they get better, we suspect central banks and governments will do as much as they can to avoid a banking crisis similar to the one we saw in 2008.
Our fund has an underweight duration compared with peers and has done for a number of years, which has led to some short-term underperformance as gilt yields rallied to all-time lows.
We have also let our cash levels build up and have invested in a number of low-duration assets, such as covered floating rate notes.