Where is the value in bank debt’s structure ?

Further h opes of de-escalating trade war between US and China, as well as the US-UK tariff deal on Autos and metals last week pushed credit spreads tighter again. AT1s were one again the outperformers (-18bp), followed by €HY (12-bp) which outperformed their $ counterparts by 3bp despite suffering from net outflows (-€45mn from EPFR) while US HY funds benefited from another week of net inflows ($1.6bn from Lipper). There is still some catch-up to do for €HY vs the iTraxx X-Over (30bp lag) and US$ HY (13bp lag) Bank Subs have more difficulty to perform (4.5bp “only”) given their relative expensiveness vs senior bank debt in the tightening movement of the last 3 weeks. On the senior side of the capital structure, spreads also tightened with an outperformance of financials (-5bp for SNP, -3.5bp for SP bank debt) vs corporates (-2bp). Sector-wise, Autos and Tech were the main beneficiaries last week (-6 and -5bp) of the easing of trade tensions, with discussions progressing between US and China while the UK and the US agreed on a deal for tariffs on cars and metals. The underperformers were REIT, Chemicals and Utili ti es, with spreads flat to 1bp tighter “only” vs swaps . We highlight on the next page the relative value by seniority on European bank debts, by taking similar maturities (2032 on average for CB, SP and SNP debts, 2034c2029 on average for T2, 1 st call date 08/30 for AT1s).