Senior & Subordinated Financials Spreads

iBoxx EUR Financials Index data provided by Markit Group Ltd

i) Senior Financials Spreads

Senior financial spreads tightened in 2017 and senior debt has remained fairly well-bid into potential for higher rates and steeper curves – helped mainly by the recovery in bank credit metrics. Supply has been taken down well and we have had a fair chunk of deals in 2018, and most investors have decent (and rising) exposures to senior bank debt.

That’s not to say we haven’t widened in line with the rest of the market. There has been an adjustment. However, that comes as secondary market bond liquidity is poor, turnover and volumes very low. There’s a growing confidence in the financials sector and we think that the outperformance in financials versus non-financials will be the case again in 2018, as it was in 2017.

For the year so far, the index is 35bp wider but 4bp tighter through September in line with the broader market.


MiFID II is HERE


ii) Senior Financials Spreads 2015-

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iii) Subordinated Spreads

The subordinated debt markets are underperforming in 2018, against our expectations – but it comes as event risk impacts higher beta assets. There has been pressure in the CoCo market and it has impacted other subordinated sectors, too. Event risk (Italy of late) and higher rates have made for some greater levels of wariness around the product. We still believe that this is unwarranted.

The iBoxx subordinated financials index tightened by 15bp in September, and is 80bp wider for the year to end September.


iv) Subordinated Spreads 2015-


 

v) 2008-2009: Sub financials collapse and recovery

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