CoCo Bond Market Index Spreads and Yields

iBoxx EUR Contingent Convertible Index data provided by Markit Group Ltd

i) Contingent Convertible Index Spreads

The opening quarter of 2017 has seen index spreads tighten by 100bp and index yields fall by 80bp. After a difficult 2016, the CoCo bond market is in top form. There have been a few new deals, but not enough to satisfy an investor base looking for yield and in a sector which now seems to be back in favour. The recovery in macro recently has aided the view that banks might have seen the worst.

CoCos are supposed to be the “all-singing, all-dancing” capital product created to assuage regulators and fill the depleted capital bucket post-crisis to the new higher required levels.  The key message is that CoCos are “designed to fail” without triggering a bank default.

That’s forgotten and likely will be for a while as markets anticipate a continued recovery in banking sector credit metrics.

ii) Contingent Convertible Index Yields