Europe

Headlines have painted a nervous picture of the health of consumers across Europe. Simultaneously, rating agencies have upgraded their outlook on the same consumer assets to neutral. The short story is that, although there has been a mild weakening in performance metrics, the consumer has held up well and is ahead of our base case expectations in almost all areas.

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.

We are coming towards the end of the reporting cycle for European banks for the first half of 2024. Unlike other quarterly reports, mid-year results are particularly useful in our view. They confirm the trends that we have already seen in the first half of the year, and thus validate or indeed put into question, the outlook that the management teams laid out for the full fiscal year.

Second quarter growth data for the Eurozone on Tuesday reaffirmed the gradual uptick in the region’s trajectory relative to the pace seen across 2023, with quarter-on-quarter (QoQ) growth slightly higher than expectations at 0.3%.

Last week, the Bank of England (BoE) published a speech by its Executive Director for Markets, Victoria Saporta, in which she laid out the central bank’s evolving role as a lender to the UK banking system. More specifically, the speech highlighted how the BoE expects to see UK banks having a greater reliance on its funding facilities going forward.

A consumer loan ABS issued last week by Consors Finanz, a fully-owned subsidiary of BNP Personal Finance, highlights the remarkable appetite investors are currently showing for mezzanine ABS bonds.

Last month saw the European Central Bank (ECB) get their cutting cycle underway with a 25bp cut in the deposit rate to 3.75%. However, any expectations for a rapid series of reductions after the first move were tempered by President Christine Lagarde, who at the subsequent press conference was clear that the ECB could move in phases in which they left interest rates unchanged.

After weeks of volatility following President Emmanuel Macron’s decision to call snap parliamentary elections in France, markets were breathing a sigh of cautious relief on Monday after the far-right Rassemblement National (RN) underperformed the polls.

The global financial crisis was a seismic shock to banking systems globally, and triggered a regulatory marathon with banks having to adapt to a far stricter set of rules (known as Basel III) set out by the Basel Committee on Banking Supervision (BCBS).

For the fixed income fanatics amongst us, June was always going to be one for the books with all three of the major central banks meeting, elections, and continued data.

Phoenix Group (Phoenix), a UK-based insurer mostly in the savings and pensions business, announced a tender offer at par for up to $500m of its $750m 5.625% RT1 callable in January 2025, and $350m Tier 2 callable in June 2026.

When market participants were asked at the end of last year to enumerate the main risks investors would face in 2024, the vast majority of those surveyed counted politics and elections amongst the top factors to consider for the unrewarding task of forecasting total returns for major asset classes over the following twelve months.