Last week the EUR IG credit index widened +1bp amid rates volatility due to potential increases in defence expenditure within Europe as the US is threatening to pull back its support on Ukraine. In this context, Financials underperformed Non-financials widening by 0.2bp WoW with Industrials tightening -3.0bp and Utilities by -4.2bp.
Within financials, SP bonds widened 3.2bp to z+68bp with the Periphery outperforming, driven by Greek instruments (-1.2bp WoW) with its more defensive short-tenor instruments tightening the most. SNPs widened the most +4.4bp WoW with UK issuers underperforming at +7.2bp, as the UK Supreme Court denied the HM Treasury intervention in the Motor Finance case. Tier 2 widened by 3.0bp with investors reaching for yields with Greek names showing as the average top performers for the week. AT1s tightened -6.3bp with the higher-beta DB instruments outperforming in the space.
Main events from last week:
- On Monday, the UK courts turned down suggestions that the UK Government could impact their judgement on the car loans cases, after recent comments from Racheal Reeves recommended that a severe redress exercise would undermine the credibility of Britain’s regulatory environment.
- In the Italian M&A space – Unicredit issued a PR on Monday saying that it may withdraw its bid on Banco BPM if the bank goes ahead with the planned change in the Anima offer (including a higher offer of 7€ per share and flexibility to waive the Danish compromise).
On Wednesday, Mediobanca’s shareholders involved in the consultation agreement (representing 11.87% of total votes) held a meeting where they agreed with the board’s opinion that BMPS offer is inadequate. We note that shareholders involved in the agreement can still vote in either direction freely but the release of this PR certainly indicates at least some agreement at this time.
- On Thursday, Austrian negotiators from the conservative and social democrat parties agreed on a EUR1bn tax hike over 4 years on Austrian banks and energy companies. Austrian banks contributed EUR150mn last year, a figure that could go as far up as EUR400mn in the following ones. Of the total, Erste made up close to half of all contributions with EUR74mn paid up to Sep-24.
The week ahead will still be active in terms of earning releases with 8 banks releasing their 4Q24 numbers (see calendar in page 3 of our previous publication). In terms of data, it will be centered on inflation, with Spanish PPI to be reported on Wednesday, French PPI and Spanish CPI on Thursday and European CPIs (FR/IT/GER) plus US PCE on Friday. Additionally, on the employment front, we will have US IJCs on Thursday and German unemployment levels on Friday.