TwentyFour Blog

The relationship between government bond yields and swap rates – otherwise known as the swap spread – has been increasingly in focus, with the market’s attention turning to Europe last week as the 10-year German Bund yield traded higher than the 10-year euro swap rate for the first time ever.

In the past 10 days the European asset-backed securities (ABS) market has welcomed five debut issuers across multiple jurisdictions and asset classes, with the most notable being Europe’s first public solar green ABS from Enpal.

With Donald Trump’s solid victory helping the dust around the US election result settle faster than many might have expected, investors’ attention has promptly shifted to the potential economic and financial market implications of the new administration.

The challenges facing the German economy are well-documented, with growth remaining sluggish and Purchasing Managers' Indexes (PMIs) - a reliable indicator of future economic activity - continuing to point to ongoing struggles in the manufacturing sector.

In what has been a busy week for macro news in Europe, the latest round of data for the Eurozone delivered a surprise that could have implications for the European Central Bank’s (ECB) interest rate plans.

With the first Labour budget since 2010 dominating headlines, hallway conversations and family gatherings in the UK for the past couple of months, the stakes were very high indeed for the chancellor, Rachel Reeves, on Wednesday. Political opinions aside, the budget is usually an important event for market participants and this one was no exception.

Despite higher interest rates and cost of living increases across jurisdictions, there is no sign as yet of any impact on issuance levels in European consumer ABS.

A lot has happened since our last blog about the state of affairs in the European High Yield (HY) market. At the time, the sector had just seen three of the largest capital structures of Altice France, Ardagh Group and Intrum AB announce restructuring advisors in quick succession, with growing fears that it would represent the start of a wider default trend.

Over the last few months in the Additional Tier 1 (AT1) market we have seen a growing trend of issuers “pre-funding” their transactions even earlier. In some cases, such as Belgium’s KBC and Austria’s Erste Bank, bonds with expected call dates in 2025 have been tendered and replaced with new issues over a year early.

After years of decline in China’s property market and limited, uncoordinated, and ultimately unsuccessful attempts by the country’s authorities to provide some sort of solution, details have emerged over the last few weeks of a more coherent plan to stop the bleeding.

Friday’s blockbuster jobs report saw a sharp sell-off in the government bond markets, with 10-year US Treasuries selling off by close to 15 basis points (bps), while the 2-year US Treasuries posted a 30 bps move in the same direction, dragging gilts and German bunds with them.

Data out of Europe over the past few weeks has pointed to both lower growth and lower inflation, and rate expectations have shifted accordingly with market pricing now implying a 96% chance of another 25bp cut from the European Central Bank (ECB) on October 17, up from around 25% on September 20.