The TwentyFour Blog

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.

There is little disagreement among investors and economists that the last few years have been highly unusual in many respects. An inflationary shock in developed markets, one of the fastest rate hiking cycles on record, the worst year in decades for government bonds (2022), and mild recessions with no movement in unemployment are just a few of the dynamics that have strayed from recent norms.

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.

One of the drivers of the dovish pivot from the Federal Reserve (Fed) in December was the acknowledgement that the risks to the policy outlook had become more two-sided. In other words, while higher rates were still needed to tame inflation, the Fed saw a risk that staying restrictive for too long and risk damaging a labour market that has so far shown remarkable resilience.

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.

Securitisation made its latest appearance in the mainstream financial press this week with the news that the European commercial mortgage-backed security (CMBS) market is set to experience its first losses on AAA bonds since the global financial crisis.

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.

The European Central Bank (ECB) will almost certainly start their rates cutting cycle next month. Supportive inflation data and clear guidance from the governing council has driven market implied probabilities of a June cut to almost 100%, with little in the way to derail that.

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.

Over the course of last week, we saw several headlines around Additional Tier 1s (AT1s). First, the Dutch Finance Ministry indicated it is exploring the possibility of modifying or abolishing the asset class.

Almost a year ago to the day, we were in the midst of banking sector turmoil, which started off with regional banks in the US and spilled over to Europe, eventually culminating in the forced merger between Swiss banks UBS and Credit Suisse.  

The January US consumer price index (CPI) data came in stronger than expected with core month-on-month figures coming in at 0.4 % (0.3% expected) and year-on-year figures at 3.9% (3.7% expected) but unchanged from December’s 3.9% print.