Europe

Despite higher interest rates and cost of living increases across jurisdictions, there is no sign as yet of any impact on issuance levels in European consumer ABS.

A lot has happened since our last blog about the state of affairs in the European High Yield (HY) market. At the time, the sector had just seen three of the largest capital structures of Altice France, Ardagh Group and Intrum AB announce restructuring advisors in quick succession, with growing fears that it would represent the start of a wider default trend.

Over the last few months in the Additional Tier 1 (AT1) market we have seen a growing trend of issuers “pre-funding” their transactions even earlier. In some cases, such as Belgium’s KBC and Austria’s Erste Bank, bonds with expected call dates in 2025 have been tendered and replaced with new issues over a year early.

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.

The quantity of cash parked in money market funds has been at the forefront of investors’ minds for some time now. The surge of inflows for these short term risk-free instruments as rates rose was no surprise considering they now yield more than a single-B rated high yield corporate was offering just a few years ago.

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.

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.

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.

Given almost half of the world’s population resides in a country staging an election this year, 2024 was always likely to throw up a series of political headlines.

The start of the school year ordinarily also marks the end of summer for the primary bond markets as issuance restarts, though this year feels rather different.