Expected tapering of the Federal Reserve's bond-buying program as early as next month is set to provide another boon for investment bank trading units as investors switch up their portfolios. Lenders' third quarter earnings results showed a significant uptick from market volatility as Fed officials' signaled a cut in its asset purchase program, and the trend is set to continue through the end of this year.
Four European Central Bank council members have said they would be open to lifting the current 10% limit on purchases of bonds issued by the EU as well as other international bodies. The move would give the ECB greater flexibility in its purchasing options while also benefiting the EU's €800 billion NextGenerationEU recovery fund, which is due to issue a further large tranche next year.
Traders predict some $20 billion in high-grade bonds will be issued this week, a substantial amount of it from the financial sector, with Bank of America and Morgan Stanley selling new debt on the back of their strong Q3 earnings reports and JPMorgan Chase and Citigroup expected to follow before year-end. Other corporate entities are also likely to make an appearance in the market as earnings blackouts come to an end for many firms.
High-yield securities linked to collateralized loan obligations had returned over 29% this year as of August, outperforming the S&P 500's 21.5%, according to Citigroup. Analysts expect demand to continue as investors hunt strong yields offered by CLOs, despite relatively high risk.
A survey of 30 global heads of trading at asset management firms shows how their views and objectives were changed by the coronavirus pandemic, which brought increased volatility in its earliest stages along with greater reliance on cloud technology. It showed that 77% of respondents stepped up their means of accessing liquidity electronically, automated more of their trading processes and became more self-sufficient in how and where they source liquidity, with 53% diversifying their access to alternative sources.
US banks are taking diverging approaches to the uncertainty over the direction of interest rates, with lenders split between parking funds at the Federal Reserve or buying up potentially overvalued Treasurys amid slow loan growth. "You're seeing banks taking various strategies surrounding their balance sheet and interest-rate management," said Jason Goldberg, bank analyst at Barclays.
The bitcoin futures-based exchange-traded fund proposed by ProShares is expected to start trading on the NYSE Arca Exchange today, marking the first crypto currency futures-based ETF to be allowed to trade on a US exchange without objection from the Securities and Exchange Commission. Bloomberg Intelligence analyst James Seyffart says "we will be tracking closely how much of a first mover advantage there is here."
Financial Conduct Authority chair Charles Randell has informed Chancellor Rishi Sunak he will be resigning a year early, a move that has surprised regulatory specialists and prompted concerns of internal divisions at the FCA. Paul Sharma, former deputy head of the Bank of England's Prudential Regulatory Authority, said Randell's exit will be a significant loss while Nick Bayley, former head of the FCA's markets policy and international division, commented that "it's in no-one's interest to have a regulator in turmoil."
Bank of England governor Andrew Bailey has warned that inflation in the UK means the central bank will "have to act" to curb the pressure, fueling predictions of an interest rate hike before the end of this year. Bailey maintained his view that current inflation dynamics are temporary, but added that recent surges in energy prices meant it could extend well into next year.
Regulators in China are unlikely to reduce the reserve requirement ratio imposed on lenders this year after the People's Bank of China said it would aim to keep liquidity stable, according to Goldman Sachs economists. The PBOC could instead use open market transactions, as well as its medium-term lending facility and other targeted tools to maintain stable liquidity conditions, they said.
People's Bank of China Governor Yi Gang has acknowledged that difficulties besetting the Evergrande Group could affect the country's broader credit market, but said the bank and other authorities were monitoring the situation "so they do not become systematic risks". Among the steps taken to guard against deepening financial risks, the PBOC is replenishing capital for small and midsize banks, Yi said.
Now in its 14th year, the conference is the leading event for the European clearing and settlement industry and attracts over 250 senior market professionals representing European buy- and sell-side organisations, regulators, policymakers, central banks and industry service providers. This year's conference will focus on "The Journey from Analogue to Digital". Technological advancement in post-trade has been a case of evolution, not revolution, and has competed with regulatory compliance projects for budget and attention. The emergence of new types of assets, the development of distributed ledgers and other new technologies, and the catalyst of increased remote working have combined to push the digital agenda to a top priority for market participants and regulators.