Europe

With call risk in Additional Tier 1 (AT1) bonds back in the headlines, Felipe Villarroel explains how banks think about the economics of calling, and why he believes market participants frequently overestimate this risk.

Demand for floating rate assets has driven a strong reopening of the European ABS primary market, and is drawing new investors to the asset class, says Kevin Law.

European governments are unveiling hefty support packages to ease the pain of Russia’s gas shutdown, with implications for inflation and the chance of recession, says Dillon Lancaster.

While economic uncertainty in Europe is building, the healthy cash balances and low refinancing needs of Europe’s high yield bond issuers make a spike in defaults unlikely, says George Curtis.

With Europe facing an energy crisis and the UK bracing for a five-quarter recession, a strong allocation bias to the US seems a no-brainer. However, George Curtis says that when looking at relative value in fixed income, the decision is never that simple.

Fixed rate bond yields may have climbed as markets priced in higher interest rates, but both existing and new investors in floating rate bonds have more to gain as central banks keep hiking, says Pauline Quirin

With bank Additional Tier 1 (AT1) bonds broadly trading at a 10% discount to par and many being priced to perpetuity, Dillon Lancaster suggests investors are either missing or ignoring the solid fundamentals on show in Q2 earnings.

Pierre Beniguel explains why high yield issuers are selling new bonds at steep discounts to par value, and why this represents an opportunity to build potentially significant performance into fixed income portfolios going forward.

European ABS issuers largely held off on printing new deals in Q2 as broader market volatility saw spreads widen, but we are already seeing more investor-friendly structures and many favoured names are likely to bring deals offering markedly higher yields when activity picks up again.

With Heimstaden showing its commitment to corporate hybrids with a €600m tender offer, Pierre Beniguel looks at the complex decision issuers have to make and says more could follow suit with bonds trading at steep discounts.

European ABS and CLOs had a turbulent Q2 as broader macro headwinds sparked heavy selling, but investors have made good use of direct trading to pick up bonds at prices not seen since Europe’s sovereign debt crisis.

For all of these observations, there is one common observation – yields did not stay at these high levels for very long.