TwentyFour

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.

Following central bank commentary and actions has been a really useful source of information in the post global financial crisis world; however, closer to home here in the UK the commentary and the actions have been less consistent than those coming from either the Fed or the ECB.

For many years ABS has primarily been used as a funding tool for banks and other lenders.

In recent weeks we have talked often about the tightening of lending standards, the possibility of the end of dot plots, and especially the shape of the US yield curve – today’s blog encompasses all three.

It seems a long time since the European ABS market saw any meaningful volatility.