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.

Secondary market bond liquidity is poor, turnover and volumes very low. There’s a growing confidence in the financials sector and we can think that the outperformance in financials versus non-financials could be the case again in 2018, as it was in 2017.

Spreads have held relatively steady in periods of market volatility, but that’s not suggesting senior spreads have been immune to general weakness in credit markets. For the year so far, the index is 10bp wider but 3bp tighter through April in line with the broader market..


ii) Senior Financials Spreads 2015-

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iii) Subordinated Spreads

The subordinated debt markets are underperforming in 2018, against our expectations. There has been pressure in the CoCo market and it has impacted other subordinated sectors too. Event risk and higher rates have made for some greater levels of wariness around the product. We still believe that this is unwarranted.

Having felt much grief in February and March, the index is 24bp wider in the 4 months to end April, now at B+187bp and that is after 9bp of tightening in April.

iv) Subordinated Spreads 2015-


v) 2008-2009: Sub financials collapse and recovery

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