Senior & Subordinated Financials Spreads

iBoxx EUR Financials Index data provided by Markit Group Ltd

i) Senior Financials Spreads

Senior financial debt spreads came under the same pressure in 2018 as the wider market, 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.

And in 2019, the trend has also followed the wider market with the index tightening by 46bp to B+110bp. We’ve also had the highest run rate in issuance for 4-years without a detrimental impact on spreads (to end September).

See below for further charts.

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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 in 2018. Much of that weakness came from the CoCo sector where prices fell sharply on the back of weakness seen in other markets but also afflicted by single name event risk (Deutsche Bank, for example).

However, the search for yield in 2019 amid a crunch lower in government bond yields has helped this market tighten with returns, for example, in the 12%+ area in the first 9-months of the year in the AT1, with spreads 107bp tighter in the subordinated index.

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iv) Subordinated Spreads 2015-


 

v) 2008-2009: Sub financials collapse and recovery

Weds Chart