The first quarter of 2023 is behind us, but based on events and movements in the markets, it feels like we’ve got a lot more than just 65 trading days under our belts. The celebratory mood in January was driven by hopes of lower inflation rates, burgeoning fantasies about interest rates and massive liquidity. But February brought disillusionment quite quickly. This applied in particular to the bond markets. Significantly more robust economic data from the USA and the euro zone reduced the likelihood of a recession and caused inflation expectations to rise again. Central bankers took every opportunity to promise further aggressive monetary tightening. The 10-year Bund yield rose to 2.70% from 2.28% in February, a very sharp rise.

As the short end of the curve rose even more sharply, the Bund curve inversion has reached levels not seen since 1992. A severe hangover followed in March, triggered by the bankruptcies of the SVB and Credit Suisse. What many market participants would have liked to forget, including us, was suddenly very present again: the financial crisis of 2007/2008. In contrast to that time, however, rapid action by the central banks and the forced marriage between UBS and CS prevented a conflagration. The fact that the markets also had to cope with 3 interest rate hikes by the Fed and 2 steps by the ECB almost fades into the background.

To illustrate how extreme the movements in the market were, here are a few facts

  • Bund future range greater than 6 points
  • Bund/swap spread of 13bp
  • iTrax Crossover of over 130 points
  • Dax range of 1,600 points
  • Dow Jones range of 2,500 points

These bare figures in no way illustrate how tense the markets were at times. Rather, the market participants were affected by the extremely high volatility. It is also worth noting that investors in Credit Suisse’s AT1 capital had to cope with a total loss of USD 17 billion resulting from the takeover of UBS. The decisive factors here were the special bond conditions for AT1 capital of the two major banks, which only exist in Switzerland, and the withdrawal of the emergency clause installed by the Swiss National Bank over the weekend as quickly as possible. This gave it the authority to order the full ‘write down’. This was a first for this type of bond and will certainly be a talking point in the markets for some time to come.

Despite this extremely difficult market environment, we achieved a historic record on the new issue market. With a total equivalent of EUR 581.96 billion, syndicated issues in Q1 2023 exceeded the previous record level from Q1 2021 by a good EUR 30 billion. The SSA sector (sovereigns/supranationals/agencies) was the frontrunner with a share of 43.7% , ahead of the FIG sector (Financial Institutions Group) with 38.0% and Corporate Issuance with 18.3%. The share of ESG emissions (environmental, social and governance) was 21.6%.

After the issuance market picked up again significantly in the last week of March, especially for SSA, covered bonds and corporate bonds, and the bonds were successfully placed, the syndicate tables should be busy again after the Easter holidays. But the big question is: When will the market be ready for unsecured bank bond issues again?