Read our market review and find out all about our theme of the week in MyStratWeekly and its podcast with our experts Axel Botte, Aline Goupil-Raguénès and Zouhoure Bousbih.

Topic of the week: US banks: health check two months after SVB

  • Deposit outflows have hit small banks in March and then larger institutions as savers shift holdings into money market funds;
  • Outflows have slowed recently but aggregate bank deposits are down about 5% year-to-date;
  • Investors feared a credit crunch would tip the US into recession. Weekly credit data have been rather reassuring;
  • Banks have used reciproqual deposit schemes to expand the share of deposits insured by the FDIC; 
  • Money market funds have attracted savings by offerring higher returns and banking on high rates at the Fed’s reverse repo facility; 
  • The Fed should tweak the RRP to stem risks of bank runs and channel MMF assets back into Treasury bill markets. 

Market review:  Fed: pause and active thinking 

  • Fed: rates unchanged but restrictive bias;
  • Euro zone: technical recession between Q4 and Q1;
  • Risky assets resist the rebound in long rates;
  • Credit and high yield benefit from the low level of equity volatility.

Axel Botte podcast

  • Review of the week
  • Towards a rapid return of Greek debt in quality investment category

Chart of the week

msci-em-fx-index-and-used-cny-inverted

The positioning on the Treasuries market is difficult to read. Sentiment surveys describe a clearly long positioning of investors (at the highest since 2019) which constitutes a bearish signal on the market. Conversely, hedge funds have unprecedented net short positions. Speculative accounts are thus betting on a rise in long rates. These exposures can also represent credit hedges or strategies playing on the narrowing of bases between securities and derivatives, for example.

Figure of the week

This is the abyssal exchange rate of the Turkish Lira for one US dollar on Friday. The depreciation has accelerated since the results of the Presidential elections.

MyStratWeekly : Market views and strategy

Download MyStratWeekly – June 13th 2023
  • Axel Botte

    Axel Botte

    Head of markets strategy

  • Zouhoure Bousbih

    Zouhoure Bousbih

    Emerging countries strategist

  • Aline Goupil-Raguénès

    Aline Goupil-Raguénès

    Developed countries strategist

Reading time : 30 min.
INSIGHTS MARKETS
The fixed income bond market is comprised of different types of debt. Subordinated debt sits at the lower end of the debt stack, just before equity. In case of a default, repayment of subordinated debt will come after the other bond tranches.  This implies that subordinated debt bears a higher risk for investors. Therefore, in return, subordinated debt bonds compensate investors with higher yields. As a result, the asset class offers a compromise in terms of risk and returns, positioning it in the middle of the capital structure, just between equities and senior bond tranches. European banks represent the largest sub-segment of the subordinated debt asset class. This is related to the regulatory framework and its stringent rules in terms of bank capital requirements. Issuing subordinated debt allows banks to increase their capital ratios while at the same time it serves to strengthen their creditworthiness. In 2023, after a turbulent month of March, the subordinated debt market has moved back in the spotlight. The asset class’s valuations have improved, offering an opportunity to gain access to higher yields from subordinated bonds issued generally by investment grade quality signatures. The subordinated debt market is characterised by a strong “euro” bias, resulting from technical factors (European regulatory framework) that favour issuance versus issuing equity to strengthen capital structures. According to Ostrum Asset Management (Ostrum AM), subordinated debt is an instrument which can be used to diversify fixed-income allocations, offering additional yield pick-up. And it can add value to responsible bond allocation as the sustainable subordinated bond market is developing.
10/03/2023
Reserved for pros
Podcast
Reading time : 30 min.
NEWS MARKETS
Read our market review and find out all about our theme of the week in MyStratWeekly and its podcast with our experts Axel Botte, Aline Goupil-Raguénès and Zouhoure Bousbih.
09/08/2023
Reserved for pros
Podcast
Reading time : 30 min.
NEWS MARKETS
Read our market review and find out all about our theme of the week in MyStratWeekly and its podcast with our experts Axel Botte, Aline Goupil-Raguénès and Zouhoure Bousbih.
09/08/2023
Reserved for pros