24 Blog

Directly comparing old style Tier 1 to new AT1 bonds obviously disregards the numerous differences between these securities, but to us it does suggest that once the wider investor base has witnessed the resilience of the banks through this period of economic stress, there is still considerable upside from current spread levels as investors price in the structural changes that have occurred in the sector.

So while we certainly expect unemployment to increase across Europe, and we expect more borrowers will fail to pay their mortgages, we believe current mortgage performance is very far away from a level that would threaten coupon and principal payments in the major European RMBS markets.

The gradual backup in yields since the onset of the pandemic has given Treasuries a little more potency to protect bond portfolios, though we don’t see the rise being anywhere near big enough for them to behave like they used to.

Regular readers will know that we have a positive medium term view of spread products. This is based on a number of factors; valuations in our view are reasonably attractive compared to history, we are convinced that both monetary and fiscal stimulus will remain in place for an extended period of time, and perhaps most importantly we remain at a very early stage of the new cycle. Conversely, and for similar reasons, our view on government bonds at the moment is not bullish.

Thursday’s ECB meeting left us in little doubt that we should expect some serious action in December, including the possibility of some new, as yet unused measures.

Barclays announced its results for the third quarter of 2020 this morning, with a number of media outlets opting to focus on a 6% year-on-year reduction in top-line income. But looking in more detail, in our view this was a solid set of numbers from the UK bank, a timely reminder of how robust the major banks have proven to be this year and how well they have managed their way through the current crisis.

Unlike the past six months, where nearly all new deals performed well in the secondary market, from here on in that is far from guaranteed. Expect winners and losers.

Corporate hybrids have evolved in recent years into a large and well-established asset class within the European fixed income market, with €185bn of bonds outstanding.

In this short video, TwentyFour CEO Mark Holman outlines what he expects to see from bond markets in the next few weeks, and explains why he thinks fiscal stimulus in the US can be the catalyst for the rally to resume in the medium term.