Since Apr-2nd, the EUR IG credit index has widened 25bp (+5.7bp last week). In this context, Financials underperformed, widening by 27bp on average (+7.6bp WoW), while Industrial worsened by 24.9bp (+4.9bp WoW) and Utilities by 18.3bp (+1bp WoW).
Within financials, SP bonds are 12bp wider (-5.2bp WoW) to z+91bp with higher beta counties leading the move (HE +37bp, IT +19bp). SNP widened 14.8bp (-5.9bp WoW) to z+121bp with Irish bonds showing as the worst performing at +33bp (BKIR 4.875% ’28 is +47.7bp) on the relatively higher country exposure to global trade.
Tier 2 has clearly decompressed vs its senior counterparts, widening 35bp (+13.8bp WoW) with PT (+56bp) and HE (+48bp) showing again as the worst performing. As to be expected, AT1s displayed the worst performance with a 94bp widening (+33.5bp WoW) with the lower reset DB bonds showing the worst performances DB 4.5% +197bp to an 8.7% YtC.
Between Apr-2nd and last Friday, European bank bond valuations have all been about Trump’s tariffs, with the initial strong risk-off reaction, fueled by Chinese retaliation and subsequent US escalation, lasting until Apr-9th (a full week in which bank spreads widened by +31.9bp on avg.), being followed by a mild correction (-4.6bp) as Trump’s 90-day pause on non-Chinese >10% tariffs eased the most looming concerns of a US (and potentially global) recession in 2025.
Main events from last week:
- On Tuesday Bloomberg reported, citing people familiar with the matter, Santander had been gauging investor interest on a potential sale of its 62.2% stake on Santander Bank Polska. Though unconfirmed by the bank, a partial sale would not be too surprising, with Santander already having performed a 5.2% stake sale of its Polish subsidiary last September, under the aim of redeploying the capital into organic growth opportunities and/or additional share buybacks. A full exit would contradict previous statements regarding the group’s interest in remaining a long-term majority shareholder, with the Polish operations representing 6% of Santander’s global revenues and above average returns (20.2% RoTE vs. 16.3% at a group level).
- On Thursday, Moody's upgraded Swedbank ratings by one notch and changed its outlook from positive to stable, citing improvements on past AML-related governance weaknesses and prudent capital buffers, thus improving its respective SP/SNP/T2/AT1 ratings to Aa3/A3/Baa2/Ba1.
- On Friday, the ECB issued its negative opinion on the application of the Danish compromise in the €5.1bn BNP Paribas-AXA IM acquisition deal. In a press release this Monday, the lender has shared that, if the ECB’s negative is finally implemented, the CET1 impact of the deal would rise 10bp from its initial estimates to -35bp, while the ROIC would decline from 18% in the third year to 14%.
- Also on Friday, S&P performed a relatively unexpected 1-notch rating upgrade on Italy (to BBB+, outlook unchanged at stable). This action should have a positive read-across for Italian lenders, with what should be automatic upgrades to follow on UCGIM and ISPIM, whose ratings were constrained by the sovereign, and on an agency assessment basis on BAMIIM, BACRED, BPEIM, BPSOIM and ICCREA, where either an upgrade on the sovereign or the operating environment are cited by as key developments for a potential rating upgrade.
The week ahead will see the first European-bank 1Q25 numbers with NDAFH reporting on Wednesday and BKTSM on Thursday. On the Macro front, out of the US, we get Empire Manufacturing on Tuesday, Retail Sales on Wed and Initial Jobless Claims on Thursday, out of Europe we get flash UK CPI figures on Wednesday and ECB on Thursday.