Article / 13 December 2017 at 11:30 GMT

Weekly Bond Update: More female CEOs? Outrageously possible...

Fixed income Specialist / Saxo Bank

  • Outrageous Predictions call for more women as CEOs
  • Bond markets show several cases of interesting, female-led firms
  • Female leaders still undervalued as a competitive resource

By Althea Spinozzi

Last week was busy here at Saxo Bank with our Outrageous Predictions publication marking the beginning of the Christmas festivities and the closing out of 2017. I was quite impressed by the work of my colleagues in the strategy team headed by Steen Jakobsen. 

I haven’t yet decided whether, as a fixed income nerd, I was more shocked by the prediction that the Bank of Japan will be forced to abandon its yield curve control or the one holding that Bitcoin will lose 80% of its current value.

It is probably the latter as cryptocurrency mania is getting out of hand – not only as new ICOs hit the market, but also as crypto pets appear!

(In case you missed the news, Cryptokitties are the world’s first blockchain game, with each kitty worth around $100,000, different, and collectible).

Time for women to take the helm

One of the predictions that caught my attention (and isn't really so outrageous, in my view!) is the one that sees women leading the world’s largest companies. It is true that in my short yet varied career in finance, I’ve met more men than women... but the majority of the women I’ve met were self-starters, smart, and in a lot of cases they were “kicking more ass” than men. 

If you visit any executive-favoured golf course in 2018, though, how many women do you think you will see playing?

Just as my colleagues have outlined, at US universities nearly 50% more women than men graduate at a bachelor’s degree level and women in developed countries also vote 7-10% more than do men: they are often the deciding factor in elections. 

If we had best-in-class practices in gender equality, this would translate to a 10% increase in the world’s GDP within 10 years. It is also well known that women have a different way of seeing things than men and this could translate into winning strategies in the corporate world, bringing rewards to shareholders.

Company by company...

Just to expand on Saxo's 10th Outrageous Prediction, I looked at which Fortune 500 companies have a woman as CEO, trying to find some interesting opportunities. For more conservative investors, Oracle, PepsiCo, and General Motors seem to offer a pick-up over the treasuries related to their IG yield. 

PepsiCo (A1/A+)  and Oracle (A1/AA-) have notes of various maturities that can offer a modest, 35 basis point pick-up over Treasuries in the mid-term and up to 65bps for the longer 10-year maturities, meaning that a well-rated company can offer a return of approximately 3% for a 10-year maturity.

Staying within the investment grade space, General Motors (Baa3/BBB) pays more for your money. The notes have a coupon of 4.875% and 2023 maturity offer almost 100bps over the treasuries, which means that they pay a yield over the 3% for basically a five-year maturity. 

Longer maturities such as the notes with 4.2% 2027 offer 145bps over treasuries which correspond to an indicative yield of 3.8%. 

Since Mary Barra became CEO of the biggest American carmaker in 2014, she has made several bold decisions that have translated into record profits in 2017. First of all, she decided that GM would no longer sell cars in India and South Africa, meaning she decided to walk away from the fast-growing emerging markets where the majority of the carmakers are investing at the moment. 

Although this seem a peculiar decision, the situation in EM is quite complex for carmakers as they need to make large investments in order to produce small, cheap cars that will weigh on the company’s earnings for years. 

Barra also decided to sell Opel to Peugeot as the brand has lost $1 billion since 1999. Although Barra’s decisions are contestable, the company's focus on its core markets has ultimately proved a solid business move.

General Motors (daily):

General Motors

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Source: Saxo Bank 

Unfortunately, it is not possible to say that all companies with female CEO are better managed. Case in point? Avon, the B3/B-reated cosmetics firm. Avon notes with 5% and 2023 maturity trade with a significant discount, offering a yield of 11%. 

When current CEO Sheri McCoy arrived in 2012, the beauty giant already had a woman, Andrea Jung, at the helm, and the company was being probed for allegedly bribing foreign officials, which ultimately cost Avon $500 million. Investors were hoping that with McCoy stepping in, the situation would have improved. 

After five years, however, the company still has a weak balance sheet due to several misses. It arrived too late into the e-commerce space (launching only in 2014) and failed to quickly realise that although the US market was the company's core, it needed to invest in larger, growing markets such as Latin America and Eastern Europe.

If you look at the situation objectively, women don’t have super powers; they fall into the “human” category, just as men do! However, they represent an oft-undervalued resource that can be used to improve the world we are living in. 

Saxo's annual list of Outrageous Predictions is meant to make us think, and the reality is that a woman being in power shouldn’t be outrageous at all. But there is still work to do, and the hope is that in the next few years this prediction will no longer be seen as quite so "outrageous".

Glass ceiling

Glass ceiling? No problem, we'll take the stairs... Photo: Shutterstock

— Edited by Gayle Bryant and Michael McKenna

Althea Spinozzi is a sales trader at Saxo Bank.

fxtime fxtime
Great to see BOND posts and nice article Althea.
FWIW I suspect that the risk free rate will alter after the FED gives further guidance on potential rate rises and T NOTES and 30yr BONDS are going to have a wild time soon. :-)
fxtime fxtime
Oh forgot I am also hoping the FED reduce their balance sheet Bond holding as it is Christmas :-)
Althea Spinozzi Althea Spinozzi
Hi Fxtime it seems that the FED is not concerned about a flat yield curve as they believe that there is still room for interest rates hike. I believe however that a flat yield curve could represent an opportunity to stay short duration as if something is going to happen, the long part of the curve will be affected the most. Moreover, the market seems to have forgotten that North Korea is still an active threat :-)
fxtime fxtime
Thx Anthea for your comments and i already am doing the very thing you suggest. But always good to have a professionals view too so thankyou :-)

Have a good festive break.


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