FICC Focus

Sovereign balance sheets should come under renewed pressure as the war-induced oil shock forces EM governments to take extraordinary measures aimed at actively defending their domestic economies. Fabio Natalucci, CEO of the Andersen Institute for Finance & Economics, joins Damian Sassower, Bloomberg Intelligence’s chief EM fixed income strategist, to assess the risks facing EM creditors as the war in Iran endures. Natalucci and Sassower differentiate between level and trend when discussing the medium-term impact on EM growth and inflation expectations, with potential for yields to decline once recession probabilities reach critical mass.

Wider spreads and credit enhancement causing upgrades in auto asset-backed securities reduces the sector’s risk against similarly rated and maturity corporate debt, says Rod Chadehumbe, Bloomberg Intelligence ABS Strategist. Chadehumbe joins host Ira Jersey, BI’s US Rates Strategist to discuss the findings from the first ABS Primer on available on the terminal. Though spreads are tight compared to the five-year average, inflation may not cause spreads to widen. The note also makes the case for Auto ABS against similarly rated and maturity corporate debt. Chadehumbe isn’t concerned about the current level of subprime delinquencies given the credit enhancement these structures have, but is concerned with the job market and what happens if delinquencies rise much further.

Cross-asset markets are under stress given the bi-modal risks of de-escalation vs. prolonged conflict. This edition of All Options Considered podcast discusses the probability distribution around the outcomes of the Iran war and markets. BI’s Chief Global Derivatives Strategist Tanvir Sandhu is joined by Edward Fishman, author of Chokepoints: American Power in the Age of Economic Warfare and Senior Fellow at Council on Foreign Relations.

“Technicals for high yield post-Covid have been very strong, with pretty limited net new supply, minimal downgrades, strong demand given elevated base rates and pretty reasonable credit spread,” says John McClain, Goldman Sachs Asset Management’s global co-head of High Yield and Bank Loans. “We’re seeing some net new supply from areas like data-center debt,” and “large LBO bonds that are coming over the next couple of weeks, in conjunction with a couple of decent sized cap stacks migrating to high yield will probably lead to some indigestion in the marketplace.” McClain joins Bloomberg Intelligence’s Noel Hebert on the latest Credit Crunch podcast to discuss data-center vs. software issuance, private credit knock-on effects and where to find value in the current market.

The Credit Crunch podcast is part of BI’s FICC Focus series.

“The thesis of AI is very big. It’s probably one of the largest events in at least my lifetime,” says Monroe President Zia Uddin, discussing the creditor concerns about how AI may affect borrowers. “But what ends up happening is everyone kind of throws the baby out with the bathwater.” Uddin joins Bloomberg Intelligence’s Noel Hebert on the latest episode of Credit Crunch to talk about why not all software is created equal when it comes to AI exposure, as well as the benefits of originating deals and having navigated prior cycles when it comes to responding to market volatility. Uddin also discusses the large domestic opportunity, growth areas for the firm, the current interest rate climate, the varied risk profiles of large vs. mid-market lenders and retail vs. institutional needs.