Senior & Subordinated Financials Spreads

iBoxx EUR Financials Index data provided by Markit Group Ltd

i) Senior Financials Spreads

Senior financial debt spreads came under considerable pressure in 2018, the iBoxx cash index widening by 74bp to B+157bp. Supply had been taken down well and we had the lowest year for senior deals since the beginning of the euro currency era – all to no avail as the lower primary dynamic failed to support the market.

Given how we have started 2019, concerned about macro and geopolitics and again with considerable volatility and uncertainty, we are again looking for a lower supply dynamic. Spread will widen, but we are looking for only moderate weakness.

See below for further charts.

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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 Euroz [...]

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Darkening Business (DB) Prospects..what to do now?| Trade Ideas

Light at the end of  the tunnel or.. Deutsche Bank (DB) reported Q4 (and full year) 18 results on Friday morning and they were hardly inspiring. The bank continues to underperform its rivals driven by what we believe to be is a broken business model, excessive reliance on FICC and very high cost base. The Q4 performance demonstrated the scale of the problems given the very d [...]

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ii) Senior Financials Spreads 2015-

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iii) Subordinated Spreads

The subordinated debt markets also saw considerable weakness with the index almost doubling, in spread terms. Much of that weakness came from the CoCo sector where prices fell sharply (spreads gapped) on the back of weakness seen in other markets but also afflicted by single name event risk (Deutsche Bank, for example). We are likely going wider in the near term.

There are some good opportunities in the AT1 market now, with yields exceeding 8%. Single name selection will be an important consideration in the choice of issue. LT2 also curries some favour, albeit one will be hampered by liquidity.

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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 [...]

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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 Euroz [...]

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Ring (ING) in the profits | Bank Capital Insights

Beauty in its simplicity... ING reported Q4 and fully year 2018 earnings on Wednesday morning and investors seem to like the simplicity of the underlying business model and overall ease in understanding the drivers of its earnings.  Net income for 2018 came in at EUR 4.7 billion (despite the EUR 775 million of regulatory settlement costs) translating to a soild ROE of 11%. [...]

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iv) Subordinated Spreads 2015-


 

v) 2008-2009: Sub financials collapse and recovery

Weds Chart