HYBRIDS: Hybrids: Week in Review
• Mobico was placed on Watch by Moody’s on Friday with the threat of a multi-notch downgrade. The perps have already lost 12pts from before the US Bus sale so have little further to go, near-term at least. Bonds did not react to the Moody’s news.
• Harbour Energy’s Q1 results showed solid FCF of $700m but aided by Tax and Capex timing. FCF estimates for the full year were cut to $900 from $1bn. Perps were firm this week with a 20-25c improvement. HBRLN tender results showed that €521m of the Call26 had been redeemed; €128m remain.
• Adecco perps gained 15c on results which sent the stock 10% higher. The equity has been badly beaten down, so any positive news was welcome. The Perps have a very low coupon step which is a restraint for buyers until we get more positive news.
• CPI Property and Heimstaden Bostad were the top performers as high beta property generally is seen as stabilising.
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OPTIONS: Expiries for Apr10 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0900-10(E3.0bln), $1.0930-50(E3.0bln), $1.0960-65(E668mln)
- USD/JPY: Y143.00($1.3bln), Y145.00($744mln)
- EUR/GBP: Gbp0.8650-65(E643mln)
- AUD/USD: $0.6165(A$744mln), $0.6285($555mln), $0.6400(A$1.3bln)
- NZD/USD: $0.5600-05(N$724mln)
- USD/CAD: C$1.4395-00($1.5bln)
- USD/CNY: Cny7.3500($912mln), Cny7.4000($1.4bln)
GILTS: TD Securities Recommend Longs In 30s
TD Securities recommended longs in 30-Year gilts at 5.62%, targeting a move to 5.10%, with a stop set at 5.90%.
- They note that “rates vol. is heading to unhealthy levels, straining financial conditions. The BoE has already voiced its concern on this move. Markets should not underestimate a possible easing in the form of regulations or verbal easing or even a temporary QT freeze on this move. On every metric, 30-year Gilts are cheap: vs. U.S. Tsys & Bunds, as well as ASW and on the 5s30s curve”.
GERMANY: New Coalition Plans Making Use Of Increased Fiscal Space - Agreement
Key fiscal/economic measures announced by the incoming CDU/CSU/SPD coalition below. These broadly match the announcements seen in local media earlier today. Note that in Germany, an announcement of measures as part of a coalition agreement does not necessarily mean these will be implemented. Overall, the government seems to be planning to make use of the newly increased fiscal headroom:
- Reducing income taxes for small and medium incomes in the middle of the legislative period
- Investment "booster" in the form of amortization of equipment investment of 30% per year for the three years 2025-27
- After this has ended, decreasing the corporation tax in 5 steps by 1pp each starting January 2028 (currently standing at 15% of ~EBT but note that is not the only tax enterprises have to pay in Germany)
- Reduction of electricity taxes to the European minimum, reduce electricity network charges, abolish gas price levy, introduce a "industrial electricity price" for energy-intensive companies
- Make overtime bonuses tax-free, up to E2000/month tax-free labour work during pension, replace the "citizens income" by a "basic income" (compulsory job applications for unemployed persons and tougher sanctions)
- VAT decrease for food in restaurants by 12pp to 7% starting Jan 2026
- Increase of the minimum wage to E15/hour in 2026 (17% increase, agreement rather vague here though)
- Monetary incentives for EV purchases
- Plans to complete debt brake reform this year to "permanently enable additional investment"
Full coalition agreement pdf document available online, link here.
