TwentyFour

At TwentyFour our Italian ABS holdings are fairly moderate, and in general our peripheral ABS exposure has been steadily decreasing for some time. This has nothing to do with credit quality, but everything to do with relative value.

A question we have been getting more frequently for from clients in recent weeks concerns US Treasuries, and more specifically how the level of UST issuance (and where along the maturity curve it arrives) will impact yields both in the rates market and further afield in the coming months.

Sadly this is not a review of the new Queen biopic, it’s a eulogy to a bond which was called today that is as well known in the securitisation world as Freddie Mercury is in the real one – Paragon Secured Finance 1 (or PSF 1 as we knew it).

In January 2015, after years of market share erosion and leverage increases, Tesco bonds were downgraded to junk status by Moody’s and S&P, forcing all of Tesco’s debt stack out of IG corporate bond indices in the process.

A volatile last couple of weeks have certainly kept fixed income investors fastened firmly in their seats, with comments from Federal Reserve chairman Jerome Powell suggesting US monetary policy was “nowhere near neutrality” sending shock waves through global rates, credit and equity markets.

This year has been a big one for sterling bond supply, especially in the ABS market. With the end of the Bank of England’s Term Funding Scheme and the comeback of traditional bank issuers, UK issuance volume year-to-date has totalled €25bn from 38 deals placed across different asset classes.

This morning the much anticipated Q3 2018 Credit Conditions Survey was released by the Bank of England.

It may come as a surprise to some that the country currently experiencing the fastest pace of monetary tightening across developed nations is in Europe, where the main refinancing rate is well and truly anchored at -0.40%.

With September now behind us, colder mornings and darker nights approaching it seems an opportune time to take stock of how the primary market reopened this year after its traditional summer lull.

This morning we arrived to the news that the Italian government was preparing a budget that had a deficit of 2.4%.

Having listened carefully to the FOMC news conference last night, the message to us was clear – the Fed is pushing ahead with its normalisation of rates and the gradual shrinking of its balance sheet.

Those of you who have seen or heard one of our presentations will be aware of the significant impact that the FX-basis currently has on our relative value bond selection.