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by  BlueBay Fixed Income team Mar 22, 2023

Today’s markets move fast. To keep you up to speed each week, Andrzej Skiba, CFA, Head of US Fixed Income and members of his investment team will deliver forward-looking market commentary and insights into what’s driving fixed income markets over the coming week.

RBC GAM’s US fixed income capabilities span the spectrum of the spectrum of the US Credit market, ranging from short-dated money markets, Treasuries, corporate credit investment grade and high yield, securitized credit, impact investing as well as opportunities overseas. Topics of conversation will vary based on what is most relevant each week, and will include both top-down and bottom-up perspectives.

Here are highlights from this week’s video:

  • Global regulators act to contain the damage to troubled financials
  • There’s fallout from Swiss regulators’ decision to wipe out certain Credit Suisse debt
  • All eyes on the Fed, who face a momentous decision – we expect a 25bps rate increase

View transcript

Hi my name is Tim Leary & I’m a senior portfolio manager on RBC BlueBay’s Leveraged Finance Team in Connecticut – though today I’m in Dallas, Texas visiting clients & prospects.

Needless to say, it’s been an eventful few weeks for markets.

Over the weekend, UBS agreed to buy Credit Suisse (CS) in a Swiss government-brokered deal representing a share-for-share exchange that valued the bank at 3bn CHF.

This action was aimed at containing a crisis of confidence that had started to spread across global financial markets in the aftermath of Silicon Valley Bank’s failure.

In order to expedite the deal, the Swiss regulator has announced that it will provide liquidity support and guarantees to UBS by deploying a number of emergency measures.

Additionally, the regulator has written down the value of CS Additional Tier (AT1) securities to zero as part of the package, while the senior debt become UBS senior debt.

This sent shockwaves through the roughly $250bln AT1 market on Monday. CS AT1s were written off despite 3bln of equity value beneath it surviving.

In response to the actions of the Swiss regulator, European and UK regulators have released statements reaffirming that shareholders of failed banks should bear losses ahead of holders of AT1 bonds.

This led the AT1 market to bounce and that space is now well off Monday’s lows.

As a result of this news flow, two year treasuries have traded in a 1.4% range over the last two weeks. They were just over 5% yield the day before SVB went into receivership & tightened 3.7% when markets reopened this Monday.

High Yield bond prices really didn’t move too much frankly – most of the spread widening or tightening – depending on the day, was the result of rate moves.

We’ll get the FOMC rate decision on Wednesday. It will probably will do 25bps – if they don’t the market will immediately assume that the peak in rates has hit & financial conditions will ease.

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