Banks

After years of decline in China’s property market and limited, uncoordinated, and ultimately unsuccessful attempts by the country’s authorities to provide some sort of solution, details have emerged over the last few weeks of a more coherent plan to stop the bleeding.

Data out of Europe over the past few weeks has pointed to both lower growth and lower inflation, and rate expectations have shifted accordingly with market pricing now implying a 96% chance of another 25bp cut from the European Central Bank (ECB) on October 17, up from around 25% on September 20.

The building trend of consolidation in the European banking sector is important for several reasons, and could create further opportunities for bondholders.

Ten years ago this month, Mario Draghi gave a speech to the European Central Bank’s (ECB) Eurofi Financial Forum making the case for reforming securitisation regulation in order to revive the asset-backed securities (ABS) market in the wake of the global financial crisis.

Uncertainty is over, it was a 50 basis points (bps) move. As we mentioned in our previous blog, the most important take away from the Federal Open Market Committee (FOMC) meeting would be their assessment of the economy.

Yesterday the European Central Bank (ECB) delivered a 25 basis point (bp) cut, their second in the current easing cycle and in line with market consensus.

With the Federal Reserve (Fed) set to begin its long-awaited interest rate easing cycle at next week’s Federal Open Market Committee (FOMC) meeting, Wednesday’s Consumer Price Index (CPI) inflation report for August was the last big economic release investors could comb for clues as to the size of the first cut.

Earlier this week the Australian Prudential Regulation Authority (APRA) proposed scrapping Additional Tier 1 (AT1) instruments and not replacing them with any other form of junior debt, with the consultation paper suggesting that instead Australian banks could fill their 1.50% AT1 allowance with a combination of Tier 2 (1.25%) and Common Equity Tier 1 (CET1) capital (0.25%).

Any market participants hoping for a quiet few days to ease back into “work mode” after the summer break have had to rapidly adjust their expectations.

When the Bank of England (BoE) cut interest rates for the first time in four years earlier this month, we thought the move – made on a knife-edge 5-4 vote – had come a little too early.

Market attention in the government bond market has rapidly turned from central banks holding rates “higher for longer” to the potential for “lower and sooner".

Julius Baer announced a call of its $300m Additional Tier 1 (AT1) instrument. The bond had a coupon of 4.75%, and if not called it would switch to a new coupon of five-year Treasury yield plus 284 basis points (bps), so about 6.7% at the moment.