The TwentyFour Blog

The Australian ABS market has continued its red-hot start to the year with record issuance in the last two months – the 17 new deals priced in May for a total of A$12.3bn were followed by 13 deals in June adding a further A$8.5bn. For context, before May the post-2008 record for deals printed in a single month stood at 10 and the largest monthly volume at A$9.3bn.

A consumer loan ABS issued last week by Consors Finanz, a fully-owned subsidiary of BNP Personal Finance, highlights the remarkable appetite investors are currently showing for mezzanine ABS bonds.

The last few weeks have seen former President Donald Trump establish a lead over current President Joe Biden across polls in the run-up to November’s US election. Even though it is early days and a lot can change before November (including the Democrat candidate), it is worth considering what a second Trump term might mean for the world economy and for fixed income markets.

Back in April we looked in detail at the challenges and potential outcomes facing Thames Water, the debt-laden UK utility company battling to avoid government intervention. On the back of a lacklustre set of financial results and being placed into a “turnaround oversight regime” by the regulator Ofwat, Thames Water’s situation took a further turn for the worse last week.

Last month saw the European Central Bank (ECB) get their cutting cycle underway with a 25bp cut in the deposit rate to 3.75%. However, any expectations for a rapid series of reductions after the first move were tempered by President Christine Lagarde, who at the subsequent press conference was clear that the ECB could move in phases in which they left interest rates unchanged.

There is little disagreement among investors and economists that the last few years have been highly unusual in many respects. An inflationary shock in developed markets, one of the fastest rate hiking cycles on record, the worst year in decades for government bonds (2022), and mild recessions with no movement in unemployment are just a few of the dynamics that have strayed from recent norms.

After weeks of volatility following President Emmanuel Macron’s decision to call snap parliamentary elections in France, markets were breathing a sigh of cautious relief on Monday after the far-right Rassemblement National (RN) underperformed the polls.

One of the drivers of the dovish pivot from the Federal Reserve (Fed) in December was the acknowledgement that the risks to the policy outlook had become more two-sided. In other words, while higher rates were still needed to tame inflation, the Fed saw a risk that staying restrictive for too long and risk damaging a labour market that has so far shown remarkable resilience.

Having been the best performing asset class across fixed income in 2023, collateralised loan obligations (CLOs) have spent the first half of this year on similar form with record levels of issuance meeting equally strong demand from a broadening range of investors.

For any fixed income investors that follow the England football team, the plan for H2 2024 may feel somewhat familiar – no substitutions in the second half.

The latest UK inflation figures will bring some relief for consumers, but beneath the headline figure the Bank of England’s (BoE) policymakers face a more complex picture that suggests interest rate cuts may still be some way off.

Consumer Price Index (CPI) inflation as an entrée was well received by the diners, prompting a 15 basis points (bps) rally in the 10-year Treasury. The main course though, was met with some adverse critiques as the Federal Open Market Committee (FOMC) delivered a slightly more hawkish dot plot than expected.