UK

Excess savings have been at the centre of heated debates among economists and market participants ever since the pandemic.

Back in April we looked in detail at the challenges and potential outcomes facing Thames Water, the debt-laden UK utility company battling to avoid government intervention. On the back of a lacklustre set of financial results and being placed into a “turnaround oversight regime” by the regulator Ofwat, Thames Water’s situation took a further turn for the worse last week.

For any fixed income investors that follow the England football team, the plan for H2 2024 may feel somewhat familiar – no substitutions in the second half.

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).

The latest UK inflation figures will bring some relief for consumers, but beneath the headline figure the Bank of England’s (BoE) policymakers face a more complex picture that suggests interest rate cuts may still be some way off.

Consumer Price Index (CPI) inflation as an entrée was well received by the diners, prompting a 15 basis points (bps) rally in the 10-year Treasury. The main course though, was met with some adverse critiques as the Federal Open Market Committee (FOMC) delivered a slightly more hawkish dot plot than expected.

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.

We do not usually comment on press articles, but we were all quite surprised to read a piece on Bloomberg titled “A fragile banking system won’t make Europe stronger”.

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.

The European asset-backed securities (ABS) market saw a record issuance last week with €5bn of primary issuance.

The most important event this week is likely to be this Wednesday’s US Consumer Prices Index (CPI) release.

The first four months of this year have seen €11.6bn in gross Additional Tier 1 (AT1) issuance from European banks, across euros, dollars and sterling markets.