Archive

Monthly Archives: February 2019

28th February 2019

No Stopping the Easy Carry Business (ECB) | Bank Capital Insights

Carry on TLTRO – The show must go on

It seems that market participants are placing more and more confidence that the ECB will announce a new fixed TLTRO program next month. That will mean credit supply to the EZ economies will continue unabated and counter any economic slowdown, with the biggest beneficiaries of the new program likely to be the peripheral banks, especially the Italians.  Credit investors are now getting used to the never-ending easy monetary policy accommodation and getting forced to move into riskier parts of the capital structure.

Continue reading

28th February 2019

More of the same will do nicely

MARKET CLOSE:
iTraxx Main

61.2bp, -0.3bp

iTraxx X-Over

276.0bp, +2.1bp

🇩🇪 10 Yr Bund

0.18%, +3bp

iBoxx Corp IG

B+145bp, -1.5bp

iBoxx Corp HY

B+448bp, -3bp

🇺🇸 10 Yr US T-Bond

2.72%, +3bp

🇬🇧 FTSE 100

6007.05, (-0.71%)
🇩🇪 DAX

13116.25, (-0.70%)
🇺🇸 S&P 500

3319.47, (-1.12%)

Feeling replete…

We closed chapter two on a slightly sour note with no further breakthrough on the US/North Korean talks, amid data from China showing that the manufacturing sector continued to contract for a third consecutive month. But we’re in no mood to let that detract from what has been a very positive start to the year – and better than what most investors could have expected. When equities in Europe rise by 5%, by over 10% in the US and IG credit in Europe delivers total returns closing in on 2% – with high yield at almost 4%, we have to extremely satisfied. It’s early days of course and last year’s more difficult period is still fresh in the mind, but we have bagged some good performance as we ready for some testing times ahead.

Continue reading

27th February 2019

Show me the risk!

MARKET CLOSE:
iTraxx Main

61.5bp, -1.2bp

iTraxx X-Over

273.9bp, -2.6bp

🇩🇪 10 Yr Bund

0.15%, +4bp

iBoxx Corp IG

B+146.5bp, -2.25bp

iBoxx Corp HY

B+451.5bp, -5bp

🇺🇸 10 Yr US T-Bond

2.68%, +4bp

🇬🇧 FTSE 100

6007.05, (-0.71%)
🇩🇪 DAX

13116.25, (-0.70%)
🇺🇸 S&P 500

3319.47, (-1.12%)

Markets’ buoyant February…

We’ve thrown all caution to the wind in these opening couple of months of the year – and it feels great. All asset classes have been on the up. The risk-on mood in the market has had equities push higher, credit spreads have ratcheted tighter and commodities have the wind in their sails. On the flip side – and classically it should not be the case, government bond market investors have also had a very good time out.

It means that we have plenty of performance in the bag, which we are going to need. Because recession risks loom amid the current slowdown, and dislocations in the aforementioned performances are going to come. However, in credit, is this 2009, 2014 or 2016 all over again? Or is central bank profligacy a busted flush as we try to contain the decade long build up of (debt) excesses with reduced effective firepower?
Continue reading

26th February 2019

Negative Yields Do Wonders | Bank Capital Insights

KBC issues EUR Perp NC5 at yield of 4.75%

KBC (the Belgian bank assurer) apparently are issuing a EUR 500 million Perp NC 5 AT1 with a yield of 4.75%.  This despite Santander’s decision not to call their 6.25 EUR AT1 a couple of weeks ago and general economic uncertainty.

KBC has a good credit profile as reflected in its fully loaded CET1 ratio 16%, leverage ratio of 6.1%, very low credit costs (in fact negative 4 bps for 2018) and strong earnings as reflected in the ROE of 16%.  But, even still, given the bank’s business model…

Continue reading

21st February 2019

Danske Bank AT1: Mispriced for extension risk? | Trade Ideas

Danske Bank – The money laundering saga continues 

Danske Bank continues to be in the headlines with the ongoing money laundering scandal at its Estonian unit.   The bank’s shares have tumbled more than 50%+ in the last 12 months on uncertainty surrounding overall litigation and remedial costs.

The bank’s 2018 annual results do indicate the strength of its underlying franchise/business model and good credit profile.

Continue reading

19th February 2019

HSBC – Solid as a rock | Bank Capital Insights

Equity investors may be disappointed

HSBC reported Q4 and FY 18 earnings report on Tuesday morning that missed consensus estimates.   Most of the weakness stemmed from a slowdown in the global banking and markets division. The bank’s stock was down about 4% post the earnings announcement reflecting the earnings miss and slightly negative outlook for 2019.   The stock price reaction seems to be a natural reaction but for credit investors, it should not matter much.

Continue reading

17th February 2019

Let it Rip | Bank Capital Insights

Risk-on week for EU banks

Last week was a good one for European banks with risk rallying across the board – from equities to sub debt to single name CDS to credit indices.  We had a number of banks reporting earnings and investors liked what they heard – especially from the banks that have almost completed their restructuring – Commerzbank, Credit Suisse and Royal Bank of Scotland.

The one common theme across the earnings reports was that market activities continue to be a struggle for everyone to make money and normal commercial banking with tight cost controls and low credit costs provide decent returns.

Continue reading

13th February 2019

To Fall or Not to Fall on the Non Call | Bank Capital Insights

Head Scratcher or Mis-priced Hope?

Banco Santander (SANTAN) in the end decided not to call their EUR 6.25 Perp 19 AT1 for economic reasons.  This is the first AT1 not to be called and, to some extent, this has come as a surprise to most investors.  However, purely from an issuer perspective, it makes complete sense.

Post the non-call, with a reset spread of 541 bps, this AT1 now should yield about 5.5% from next month. Initially post the non-call announcement, the AT1 dropped about 2 points and then bounced back and is trading close to par. This strange price action has opened up more questions than answers.

Continue reading

11th February 2019

(Free Content) Trade Ideas – What You’ve Been Missing!

GJ Prasad’s Trade Ideas column has been providing actionable, tactical trading ideas in bank subordinated debt and single name CDS in the form of a weekly note.

Here are a few of the trade ideas so far which you can now read free of charge to get a feel of what this new subscription service offers:

SANTAN:

Want a nice trade to play SANTAN AT1 call decision? | Trade Ideas


UBS:

You want yield but from “Almost safe bank”? | Bank Capital Insights


STANLN & HSBC:

Food for Thought Idea in USD AT1 Land | Bank Capital


To access the most recently published Trade Ideas, become a subscriber or contact us to find out more.

Trade Ideas is an exclusive subscription here on creditmarketdaily.com that provides you with access to our in-house expertise in more ways than one. In addition to the published note, your subscription to Trade Ideas gives you direct phone or e-mail access to the author to discuss the trade ideas in detail.

Trade Ideas subscriptions are available to a limited number of subscribers.  If you are not a subscriber, be sure that you don’t miss out on it any more.

11th February 2019

Relative Value in EUR High yield AT1s | Trade Ideas

Periphery or Core Eurozone AT1..tough to choose..

UCGIM or RBIAV AT1

In general, investors seem to like owning AT1s issued by core Eurozone banks and avoid those issued by peripheral banks, especially the Italians. They are probably right to do so to a large extent given the potential tail risks emerging from Italian politics, for example. But, what if there is a core Eurozone bank that is mostly EM in nature but benefits from its Austrian domicile?

That brings us to our trade idea for this week – Long the UCGIM 6.75 Perp 21 at 98 cash price and short the RBIAV 4.5 Perp 25 at 82 cash price…

Continue reading