Banks

Last week was one of the most volatile on record. President Trump's announcement of a 90-day pause in reciprocal tariffs for every country bar China sparked one of the largest rallies in equity indices in recent history.

With the market focus over the last week or so being firmly on equities and credit spreads, it is worth zooming in on developments in the European bank credit default swap (CDS) market.

While much of the focus in private credit has been on direct lending, Significant Risk Transfer (SRT) is emerging as a compelling alternative. What began as a regulatory tool is now gaining traction with a growing investor base, as banks look to optimise capital and issuance reaches record highs.

“Liberation Day” has landed, and not with a whimper. In extraordinary scenes in the Rose Garden of the White House, President Trump held up a board outlining the level of tariffs the US will impose on countries around the world, and in most cases they were worse than worst-case expectations.

With the recent economic spotlight dominated by President Trump’s rhetoric and Germany’s blockbuster fiscal expansion plans, Wednesday brought the UK back into focus with the latest round of inflation data and the Spring Statement from the Chancellor, Rachel Reeves.

Contentious call decisions from high profile issuers can provoke a fair bit of debate and emotion among participants in the Additional Tier 1 (AT1) market, and Deutsche Bank has put itself in the spotlight by announcing it will be calling only one of two AT1 bonds approaching their call dates.

European government bonds have sold off sharply this week in the wake of Germany’s market-moving fiscal measures, while European equities, especially those of banks, have moved in the other direction.

The Additional Tier 1 (AT1) primary market has begun 2025 with a bang, with a sterling perpetual non-call seven transaction from NatWest that hit the screens on Wednesday morning set to take issuance over €16bn equivalent year-to-date, more than double the volume we have seen over the same period in each of the last five years.

European banks‘ full year 2024 reporting season has now largely come to an end, with only a handful of issuers still to report over the next few weeks.

The recent rally in European fixed income has partly been driven by improved economic sentiment, falling inflation expectations, and a more accommodative monetary policy outlook from the European Central Bank (ECB) and the Bank of England (BoE).

In a week when US core consumer price inflation unexpectedly rose to 0.4% month-on-month and Federal Reserve (Fed) chair Jerome Powell told Congress the central bank was in “no hurry” to cut interest rates, many market participants have been surprised by the relatively muted reaction in US Treasuries (USTs).

As we approach the end of the Q4 2024 earnings reporting season for banks, most are now out of their “blackout” periods which means bond issuance has resumed. Wednesday was an active day in primary markets with a couple of deals that are worth commenting on.