Banks

After a tumultuous year for fixed income, government bond markets were finally delivering a story of falling inflation in Q4 2023. In our Investment Grade quarterly update, Gordon Shannon reflects on Q4, and in particular the month of December which proved to be one of the strongest months of the year, as hopes of multiple rate cuts in 2024 were accelerated.

The minutes to December’s Federal Open Market Committee (FOMC) meeting were released earlier this month and provided some interesting insights on the potential path for quantitative tightening in 2024, with several participants ultimately recommending slowing the pace of quantitative tightening (QT), which is running at $95bn, to zero.

UK banks will start reporting fourth-quarter 2023 earnings only in about a month or so, which feels like an eternity for eager bank analysts. Fortunately, the Bank of England published two interesting reports last week that offer a useful and insightful preview into last quarter’s key lending, asset quality and funding trends.

With most central banks presumably at highs in terms of monetary policy rates during the current cycle, the focus has rightly shifted to the timing of the first cut. 

We recently highlighted in our 2024 outlook our expectations of significant inflows into fixed income to be an important technical driver of performance in the year ahead.

In a particularly noteworthy start to the year, we have seen the UK take the lead in the ABS primary markets, with two UK master trust RMBS deals pricing in the first week of January,

The ECB's annual SREP results revealed a resilient European banking sector. Jakub Lichwa discusses that despite facing headwinds in 2023, the overall scores for 106 institutions remained steady at 2.6, with 71% of these institutions maintaining their scores, while 15% showed improvement.

The direction of monetary policy rates going forward is more clear, following the Federal Reserve's release of its new summary of economic projections and the dovish remarks of Jerome Powell.

After a horrible year for financial markets in 2022, the macro-outlook for 2023 had a lot of consensus views, with most predicting a much better year ahead, helped by supportive rate cuts from central banks and positive returns from both government bonds and credit.  

Despite concerns about a maturity wall, Chris Holman explains how research shows the high yield maturity profile in the US is less concerning. Overall, a focus on higher-rated bonds suggests a relatively healthy outlook for the primary market and a default rate in line with historical averages.

As earnings season ends, we take stock of the latest US results and what it tells us about the health of corporates, the consumer, and the outlook for the broader economy.

UBS came to the market yesterday with a two-tranche $ additional tier 1 transaction, which was highly anticipated and didn’t disappoint.