Bond managers cut CoCos as yields slide

Bond managers have been slashing exposure to contingent convertible debt - a key source of alpha for fixed income funds in recent months - as yields begin to fall and an avalanche of issuance appears on the horizon.

Banks have been rushing to issue contingent convertible debt (CoCos) in an effort to meet incoming Basel III capital requirements, but managers are now becoming more cautious on the bonds. John Pattullo and Jenna Barnard, managers of the £1.1bn Henderson Strategic Bond fund, have halved their position in CoCos in recent weeks. “Our concern was more to do with the amount of issuance that was coming to markets,” Barnard said. “We were worried about the amount of supply and the valuations. The yields have dipped substantially from where they were three months ago.” The European CoCo m...