Senior & Subordinated Financials Spreads

iBoxx EUR Financials Index data provided by Markit Group Ltd

i) Senior Financials Spreads

Senior financial spreads have started to tighten 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 although it has not been at all heavy, and most investors have decent (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 is set to continue through 2017.

Spreads were about 2bp tighter on the iBoxx index in November on almost €13bn of issuance in the month. They’re 30bp tighter this year so far in the period to the end of September.


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ii) Senior Financials Spreads 2015-

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iii) Subordinated Spreads

The tide has turned after a particularly poor Q1 2016 when the CoCo index spread was at B+1002bp! The CoCo market and subordinated debt sector overall is where the money is being parked and we are seeing a shift into the sector from high yield corporates. ‘Yield’ is still the modus operandi of the investment process and improving sentiment towards financials is helping for some good performance here, especially versus high yield. The index outperformed and has tightened by 3bp in November and is 113bp tighter in the year. Excellent.


iv) Subordinated Spreads 2015-


 

v) 2008-2009: Sub financials collapse and recovery

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