Last week the EUR IG credit index widened +23bp following a “liberation day” in the US which created havoc in equity markets across the globe on the back of higher odds of a recession being priced in. In this context, Financials widened +23bp on average, while Industrial worsened by +24bp and Utilities by +21bp.
Within financials, SP bonds are +20bp WoW to z+96bp with higher beta counties leading the move (HE +33bp, IT +23bp, FR +21bp). SNP widened +23bp WoW to z+127bp with IE bonds showing as the worst performing at +30bp (BKIR 4.875% ’28 is +44.8bp) on the relatively higher percentage of exports to the US we suspect. Tier 2 closed the week at +26bp with HE showing again as the worst performing +36bp and the CAJAMA 5.25% ’31 giving up some of the recent outperformance at +51bp. AT1s were by far the worst performing asset class at +60bp WoW with DB 4.5% +138bp to a 9.7% yield.
Regarding the risk-off reaction from Trump’s tariff announcement, even though we remain confident on European bank fundamentals, we view the widening endured by financial instruments as sustainable, with the “bracing for a recession” spread levels seen in 2022-23 still 30bp off in the SP space, +40bp in SNP, +80bp in T2 and +240bp in AT1.
Main events from last week:
- On Tuesday, Fitch upgraded the four major banks in Greece by a notch on the back of the improved operating environment and the support coming from the Recovery and Resilience Fund. Following the move both NBG and Eurobank’s SP ratings are now BBB- while Piraeus and Alpha’s bonds were upgraded to BB+ and left on a positive outlook (although the agency only rates the issuer profile for the latter).
- On Wednesday, Credit Agricole got the ECB approval to increase its stake in BPM to 19.9% while it also confirmed it does not intend to launch a public offer for the bank. On the same day, UCGIM announced it is planning to review its distribution agreement with Amundi (due to expire in 2027) in what seems a negotiation tactic for UCG as it tries to complete its acquisition of BAMIIM.
- On Thursday, the FCA said the Court of Appeal went “too far” by ruling that car dealers have a fiduciary duty to act in the best interest of customers when it comes to disclosing their commissions from motor finance lenders. It remains unclear exactly when the court will issue its ruling, although it would usually be expected within six months. The FCA has committed itself to deciding within six weeks of the judgment whether an industry-wide redress scheme is required.
The week ahead will see the first 1Q25 numbers coming out of the US with JP Morgan, Wells Fargo and Morgan Stanley reporting on Friday. On the Macro front, in the US we will get the FOMC meeting minutes on Wednesday, CPI and Jobless Claims on Thursday, and PPI on Friday. Over to the EU, will have less to wait for German Industrial Production out this morning, and only the UK monthly GDP on Friday.