UK

The long-awaited Personal Income and Outlays report for December was released last Friday. This piece produced by the U.S.’ Bureau of Economic Analysis contains information about personal income, savings rates and very importantly the Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge of the economy.

UK banks will start reporting fourth-quarter 2023 earnings only in about a month or so, which feels like an eternity for eager bank analysts. Fortunately, the Bank of England published two interesting reports last week that offer a useful and insightful preview into last quarter’s key lending, asset quality and funding trends.

Within the European ABS landscape, Volkswagen Leasing has solidified its role as a benchmark issuer under the Volkswagen Compartment Leasing (VCL) platform. Volkswagen uses this platform – with over 25 years of history – to finance standard German auto loans. It is probably one of the least exciting platforms but also one of the most liquid ABS investments you can buy.

There is good reason for fixed income investors to be positive as we move into 2024, although there is also reason to remain cautious. The welcome news is that inflation globally has finally started to fall after remaining stubbornly high for most of 2023.

Last year saw returns in European high yield (HY) of approximately 12%, driven by tighter spreads (-102bps) and lower government bond yields (five-year bunds were -59bps).

Douglas Charleston, believes 2024 will continue to provide the carry that has been so welcome, but see market growth and diversity continuing to make European ABS increasingly scalable. 

2023 proved to be a second year where European ABS gave investors the strongest returns in fixed income with the benefit of very low volatility. As risk-free rates grew to what we expect to be the peak, income was maximised whilst the various market pivots on rates came and went in the rear view mirror.

After a horrible year for financial markets in 2022, the macro-outlook for 2023 had a lot of consensus views, with most predicting a much better year ahead, helped by supportive rate cuts from central banks and positive returns from both government bonds and credit.  

While bonds are once again finding their feet, investors have found themselves sitting on cash balances of 30% to 50%. This capital preservation trade has made perfect sense, but does it still make sense as we reach terminal rates?

This morning the ONS published its monthly update on the UK labour market. Of all the G7 countries, the UK has had the most puzzling labour market dynamics post pandemic, as we discussed in a previous blog.

After what can only be described as a relatively dire year for fixed income in 2022, during which spiralling inflation led to one of the most aggressive rate hiking cycles on record, we believe the market for bonds is now looking much healthier.

Following the recent publication of the European Central Bank's monthly “Monetary Developments in the Euro Area” report, Felipe Villarroel takes a deep dive into how this report evidences the impact that successive rate hikes are having on the economy