Strategic Income Quarterly Update – January 2023

Overnight, the CDU/CSU (the winner of the latest German election) and the SPD (the leader of the current parliament set to end on March 25) announced Germany’s largest fiscal policy shift in decades.

Last week, risky assets continued to experience a somewhat volatile period. The tone was generally a risk off one, with correlations between risk free and risky assets back to negative.

The Additional Tier 1 (AT1) primary market has begun 2025 with a bang, with a sterling perpetual non-call seven transaction from NatWest that hit the screens on Wednesday morning set to take issuance over €16bn equivalent year-to-date, more than double the volume we have seen over the same period in each of the last five years.

European banks‘ full year 2024 reporting season has now largely come to an end, with only a handful of issuers still to report over the next few weeks.

Since the Federal Reserve first cut interest rates in September, we have seen the most aggressive rise in US Treasury yields of any cutting cycle over the past 40 years.

The recent rally in European fixed income has partly been driven by improved economic sentiment, falling inflation expectations, and a more accommodative monetary policy outlook from the European Central Bank (ECB) and the Bank of England (BoE).