TwentyFour

Last year, with credit spreads tightening close to historic levels, it seemed appropriate to us to take a more prudent stance and move to a more balanced portfolio.

Like many of you we have been following the latest developments in the Tesla story with interest and curiosity, though fortunately not as investors, I hasten to add.

Typically in August, credit liquidity becomes a bit like my lawn this summer: patchy. Over the past few weeks there have been a few stories of large fund groups seeing significant outflows from the asset class, and even of liquidations, which begs the question: what are they selling?

We have had a lot of discussion, both internally and externally, over the last few days around when might be the time to begin adding more risk to portfolios again.

Following on from the release of solid Q2 numbers, and no longer in a closed-period, Barclays were quickly out of the blocks and announced the issue of a new AT1 this morning; a $2bn transaction with initial price talk of 8%.

Now that the summer lull has finally kicked in, it seems an ideal time to review the ABS market so far this year and try to make a prediction for the remainder of 2018.

Whilst no hike from the FOMC was expected overnight, markets are still pricing in an eighth hike in September and a ninth in December, which would take the upper bound of the Fed Funds rate to 2.5%.

It’s been nearly five months since the Italian general elections, with the result and the process of forming a coalition government eventually leading to the steepest selloff in BTPs we’ve seen for a long time, and the spread to bunds touching levels not seen since 2013.

This significant flattening came about as the Fed signalled its determination to push through policy normalisation, with four hikes now expected for the calendar year 2018, which would take the upper bound of the Fed Funds rate to 2.5% by year-end.

Even in the midst of a busy earning season, discussions on central bank policy never seem to go away.

Looking at the state of the Turkish economy since President Erdogan decided to meddle in the affairs of its central bank; with the Lira down about 20% vs the US dollar, inflation running at 15%, and the yield on the 10yr government bond running at almost 17%, you might be tempted to think that most leaders would stay well away from the subject.

So far the US earnings season has been positive, with the major US banks being the outperformers to date – both Goldman Sachs and Bank of America strongly beat profit estimates and JP Morgan posted record Q2 profits.