European ABS: Five things to expect in 2022

After a relatively quiet period during the closing weeks last year, the primary ABS market has enjoyed a solid start to 2022.

Powell’s hard line may have surprised investors, particularly in light of recent market volatility and increasing geopolitical risk in Eastern Europe, but the Fed’s fear of prolonged higher inflation looks to be trumping those concerns.

TwentyFour Partner and Portfolio Manager, Douglas Charleston, explains how ABS markets have performed in Q4 2021 and provides his outlook for the new year.

TwentyFour Portfolio Manager, Charlene Malik, discusses market conditions in Q4 2021 and provides her outlook for the new year.

TwentyFour Partner and Portfolio Manager, Gordon Shannon, discusses how the short term bond strategy has performed in Q4 2021 and provides his outlook for the new year.

If 2021 was a bad year for global bond returns, it follows there were few natural shelters to be found within fixed income from the brunt of inflation and rates-driven volatility; the Barclays Global Aggregate Index (a widely used broad measure of bond performance) returned -4.7% in USD terms, while European investment grade credit returned -1.1% despite credit spreads tightening over the course of the year.

Inflation was the dominant theme across financial markets in 2021, and we think it is likely to be a big driver of returns again in 2022.

It has been a very interesting start to the year in the rates sector of the market.

With inflation and rate hikes dominating market discourse, we expect floating rate assets such as ABS and CLOs to benefit from increasing demand in 2022.