TwentyFour

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.

The area that caused the most concern in the Q1 report was the big drop in availability of unsecured credit to households; however, availability was unchanged in Q2, thanks in particular to a change in appetite for risk from lenders, and also an improvement in market share objectives.

In the past two years the diversity of supply in the ABS market has been restricted by the availability of cheaper funding alternatives, both in the Eurozone through the TLTRO and in the UK, where the BoE Term Funding Scheme has suppressed issuance from the traditional banks and building societies.

It’s been an interesting week for European CLOs; one of our favourite picks in fixed income. 

Credit metrics, as measured by the rating agencies, continued to improve throughout the first half of this year, with all corners of the globe having comfortably more upgrades than downgrades.

The last ten year period has seen supply from various parts of the ABS market ebb and flow.

Today sees the launch of the first dedicated Additional Tier 1 Exchange Traded Fund. As first mover, Invesco Powershares gets to claim the simplest ticker, AT1 LN.

We woke today to the ironic news that on the same morning that Greece struck a deal with Eurozone authorities to ease its repayment obligations, another borrower, who also manged to ease its obligations a few years ago, has now decided to return to the markets with a new issue.