Investment Grade Quarterly Update – July 2024

Johnathan Owen, Portfolio Management, defines the second quarter of 2024 as another interesting period for financial markets, marked by the first rate cut from the European Central Bank (ECB) in June and President Macron's snap election announcement in France. He outlines what these meant for the Investment Grade (IG) team. 

Key takeaways: 

Rate cuts

• June brought the first rate cut from the ECB. However, it was not the start to a rate cutting cycle many were hoping for 
• Markets now expect around 45 basis points (bps) of cuts from each of the Federal Reserve (Fed), ECB and Bank of England (BoE) by the end of the year 
• In the US and UK the first cut is expected by the November Fed meeting (6-7 November)   

IG market performance 

Following the announcement of the French election: 

• Sterling IG spreads remained range bound through April, rallied in May to 110 bps which was their YTD tights, but sold off by 12 bps in June
• European spreads followed a very similar pattern, however, unsurprisingly witnessed a more significant widening of c. 15 bps
• US spreads had a more benign quarter underperforming sterling and euros in the May rally but outperformed both on the announcement of the French election 

Market outlook

• The IG team continue to favour financials, particularly seniors and selective short-dated Additional Tier 1s (AT1s)