Our Fixed Income Top Picks
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Hungary: Inflation in July declined to 1.2% YoY much below the expectations; it seems the exchange rate has started to work
Hungary's headline inflation decreased to 1.2% year-on-year in July from 1.7% in June. The published data was lower than the consensus (1.5%) and our forecast (1.6%). The lower-than-expected inflation was widespread among the main inflation categories.
Glencore: excellent performance, higher dividend
Glencore, one of the world’s largest diversified mining companies, released its H1 earnings report yesterday, which showed strong results. The company exceeded analysts’ expectations across all key financial lines, and a significant improvement is also evident on an annual basis. Higher commodity prices greatly contributed to this performance, and Glencore also took advantage of the trading opportunities created by the war in Iran. In light of this, management has increased the dividend and announced a share buyback program. For now, we are keeping the stock on our Equity Top Pick List.
U.S. and European corporate bond spreads remain at historically low levels, leaving limited room for yield premiums, particularly in the high-yield segment. Regional sovereign and corporate bonds denominated in euros and U.S. dollars still offer attractive alternatives with moderate risk profiles. In this report, we have selected instruments linked to fundamentally solid issuers that provide a balanced risk-return profile in the current market environment.
Diversification of the bond portfolio by currency should continue to be implemented through euro- and dollar-denominated regional government bonds (Hungarian, Romanian, Albanian), as well as high-quality corporate bonds issued in euros and dollars.
Euro-Denominated Corporate Bonds
Corporate bond yields remain at low levels, as risk appetite in the capital markets is currently high, supported by strong profit outlooks and a favorable macroeconomic environment. January started with an exceptionally strong wave of corporate bond issuance. In such an environment, it is challenging to find corporate bonds that still offer meaningful yields at acceptable risk levels. For this reason, we have kept well-known names on our list, as finding better alternatives is difficult.
Dollar-Denominated Corporate Bonds
Companies in the region typically issue bonds in euros, with a much narrower list available in dollars. The list includes two OTP-related bonds—subordinated instruments maturing in 2033 and 2035. Both have early call options, which can significantly limit the yield investors ultimately realize. Another Hungarian-linked bond on the list is MVM’s note maturing in June 2028.
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