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: EM Sovereign Debt 5.0: Nature and Climate!

  • Funding to reach the 1.5°C target is very insufficient;
  • Poor countries are the most vulnerable and have limited fiscal room to invest;
  • In the face of stalled restructuring negotiations, interest in the natural debt exchange has increased;
  • These instruments were an integral part of the Latin American debt restructuring and can be part of the solution.

Market review: Hawkish turn before summer

  • Fed: 50 bps of additional tightening in 2023;
  • ECB: towards a deposit rate of 4% in September;
  • Long-term yields proving insensitive to hawkish rhetoric;
  • Strong performance out of credit and equity markets.

Axel Botte's and Zouhoure Bousbih's podcast

  • Review of the week – Fed & BCE strong money markets scenario revisions;
  • Emerging Debt – Emerging Sovereign Debt 5.0: Nature and Climate!

Chart of the week

umich-expected-change-in-prices-during-the-next-5-10-years-median

Inflation expectations are a key variable for monetary policy. The message from the Fed is that further tightening is likely needed to ensure inflation converges to the target. Indeed, when agents anticipate inflation, they include it in their offers (of labor or of goods and services), which tends to perpetuate price adjustments. It is therefore crucial for central banks to convince them of the common benefit of keeping inflation at a low and stable level. So far, medium-term household expectations are still at levels (around 3%) incompatible with the definition of price stability.

Figure of the week

The increase in wages expected by companies over the next 12 months according to an ECB survey. In addition, firms anticipate a 6.1% increase in their selling price.

MyStratWeekly : Market views and strategy

Download MyStratWeekly – June 20th 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