Market Research In Finance

Bond yields moved higher in the first two months of the year as the market repriced #Fed expectations. But what’s the outlook for interest rates and fixed income investments as we kick off March?   While we anticipate another healthy employment number this Friday, we still expect 75bps of cuts in 2024, starting midyear. Our near-term range on the 10-year US Treasury #yield is 4% to 4.5%, before moving toward 3.5% by year-end.   While a temporary move toward the top of that range is possible, we believe this would likely require a shock in the form of materially higher #growth or inflation, and we would be strong buyers around the 4.5% level.   In terms of positioning, CMBS continues to outperform, particularly the lower-rated BBB segment. We remain most preferred in the higher-quality CMBS sector. While spreads tightened over the past six weeks, CMBS remains cheap relative to their corporate credit counterpart.   With inflation expectations rising, TIPS have outperformed their Treasury counterparts, and we remain with a preferred allocation in 5-year TIPS given we still think inflation will remain above the Fed’s 2% target this year. Read more in the full report below from Leslie Falconio and John Murtagh.

Considerations for the High Yield Bond Market: The BB-rated High Yield (HY) bond market has shown strong performance, with favorable news recently related to growth and inflation.  Fundamentally, the companies represented in the HY Index have a favorable upgrade-to-downgrade ratio. BB-rated bonds constitute 50% of the HY market, distinguishing them from lower-rated B and CCC companies. BB HY bonds typically feature fixed rate, comparatively lower coupons, resulting in lower liability costs and more manageable debt service. In Contrast, the CCC-rated segment shows a concerning trend, with an upgrade-to-downgrade ratio below 0.5 (2x as many downgrades). The credit quality dispersion, shown in the chart below, reveals that BB vs. CCC-rated bonds trade at a spread margin of ~400 to ~1,200 bps, currently sitting inside of 750 bps.  While CCC credits can generate substantial returns during robust economic growth in a low default rate environment, and have rallied with the market in recent days, CCC deterioration is most pronounced during distress and recession. During the first half of 2020, the BB-CCC spread differential reached 1,200 bps, and in 2016, CCC spreads were even wider. It is noteworthy that Europe is straddling recession, and the BB-CCC European HY bond spreads have recently widened to 1,400 bps, surpassing its peak in 2020. So despite, the recent rally in lower-rated HY bonds, caution is warranted for the weakest segment of corporate credit. The HY bonds historical default rate: BB’s 0.4% default rate, B’s 1.4% default, and CCC’s a stunning 14.3% historical default rate! During a recession, default rates tend to increase significantly from historical measures. Composition of HY Index: 50% BB, 39% B, 11% CCC. 1 year ago, the HY Bond Index had 1.2% default rate. Today, the trailing 12M default for the HY bond market is 2.6%. By Q2 2024, I expect the default rate for high yield bonds exceed 4%. Michael Schlembach, Marathon Asset Management’s PM for High Yield, expects default rates to increase in 2024, with peak default rates potentially reaching ~1.0%, ~3.0%, and >20%+ for BB, B, and CCC’s, respectively. The key will be to invest in the debt of companies with solid fundamentals and financial strength to navigate the pending downturn. If you believe as I do that an economic slowdown (potential recession) is likely in 2024, it might be best to focus on higher quality credits with robust operating businesses within the HY market. Ford serves as a prime example in the BB sector, having recently been upgraded to Investment Grade by S&P, marking it as the largest 'rising star'. Ford represents 2% of the HY index with $41 billion of bonds, its upgrade has spurred demand for other quality BB-rated bonds to replace it. While recent inflows have tightened BB spreads, I advise against trading based solely on the technicals, as this post is intended purely for informational purposes. U.S. HY rated BB vs. CCC Differential:

New Banque de France blog post on “𝗲𝗻𝘁𝗿𝗮𝗹 𝗯𝗮𝗻𝗸 𝗱𝗶𝗴𝗶𝘁𝗮𝗹 𝗰𝘂𝗿𝗿𝗲𝗻𝗰𝘆: 𝘁𝗵𝗲 𝘀𝗼𝘃𝗲𝗿𝗲𝗶𝗴𝗻𝘁𝘆 𝗰𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲.” The rapid digitization of payments poses a dual challenge to the sovereignty of the Euro area: external and internal. The 𝗲𝘅𝘁𝗲𝗿𝗻𝗮𝗹 𝗰𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲 stems from our dependence on non-European payment services (the Visa-Mastercard duopoly, ApplePay-type applications, stablecoins linked to the US dollar). This first challenge is easy to understand. The 𝗶𝗻𝘁𝗲𝗿𝗻𝗮𝗹 𝗰𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲 is more difficult to grasp. Today, in the world of legal activities, it makes no difference to me whether I receive a payment in the form of banknotes or a bank transfer. In both cases, “central” currency (issued by the central bank) is transferred: directly via the banknote, or indirectly via the interbank transfer. And I can always convert the money received in my account (commercial money) into banknotes (central money) at a rate of 1 to 1. If my bank does not have enough cash, it can obtain it from the central bank by pledging high-quality assets. In addition, I benefit from deposit insurance up to €100,000. Distributed ledger technology now enables low-cost payments, particularly cross-border payments. This is a great innovation. However, the link with central bank money has been broken: exchange at a rate of 1:1 is not guaranteed by design. There is therefore a risk of monetary fragmentation, as was the case in the United States in the 19th century. Faced with these challenges, the Eurosystem is deploying a two-pronged strategy: on retail payments with the digital euro, and on wholesale payments with the Pontes and Appia projects. The aim is to preserve European monetary sovereignty in a context of accelerated digitization of payments and tokenization of finance, promote the integration of financial markets, and ultimately enable an efficient and sustainable financing of the economy. https://lnkd.in/emF2ShXh

Re-Bundling the Bank 💡 Costs are growing for fintechs, but it's not just higher interest rates affecting their margins. Customer acquisition costs (CAC) are also on the rise and contributing to overhead. In response, some fintechs are seeking partners with existing customer bases. In June, for example, eBay and Venmo announced a partnership, allowing shoppers to pay for their purchases with their Venmo balance or methods linked to their Venmo account. Other fintechs, including big names like SoFi, have applied for bank charters. There is also a move to diversify revenue streams, illustrated by Robinhood’s reduced reliance on transaction fees for the bulk of its income. Both trends underscore a clear reality: As fintechs get squeezed, it is less viable for them to offer single, standalone products 💳 At the center of these moves is a focus on customer value. One effective way to reduce CAC is offering customers value on the financial side through products that help build savings or offer rewards. Another strategy is to add products to an existing customers base. Driven by their customers' growing expectations for digital solutions, Large Financial Institutions are increasingly partnering with, investing in and acquiring fintechs, leveraging the functionality and customer bases that fintechs have built in their specialized areas. Acquisitions such as JPMorganChase’s purchase of wePay for payments are one way for retail banks to add capabilities without building them in-house. At the same time, strategic partnerships can create efficiencies in customer acquisition. However, achieving a proper win-win in those relationships can be difficult to strike 🤝 Fintech partnerships are intended to be symbiotic, with tech companies like Chime providing a user-friendly front-end while a chartered partner bank such as The Bankcorp or Stride Bank, N.A. provides the FDIC-insured accounts and handles risk and compliance. This allowed fintechs to walk like a bank and talk like a bank while leaving the actual banking to someone else. In the last decade, deposits in fintech partner banks have skyrocketed, growing 9x faster than deposits in small US banks overall 🚀 Regulators are stepping up their oversight by issuing 50 severe enforcement actions in the last six months. A lopsided number of these actions are targeting partner banks. Startups are responding to the increased regulation by beefing up compliance talent and by reviewing existing processes, in some cases severing ties with partners. That opens the door to AI-native startups who can meet a high bar for regulation. Source: Silicon Valley Bank - https://t.ly/LfKVy     #Innovation #Fintech #Banking #OpenBanking #EmbeddedFinance #API #BaaS #FinancialServices #Payments #Lending #Blockchain #Compliance 

 🚩A Crucial Market Is Sending Its First Warning Signal The Fed’s rate-hiking campaign could still weigh heavily on the economy, not least by making it harder for companies to access funding. But on the surface, investors seem confident that most US companies will generally be able to handle a slowdown without shutting down. That’s clear in the fact that the high-yield spread — that’s the extra yield that investors demand for buying riskier corporate bonds over safer government bonds — is still quite narrow. This indicates that investors aren’t too concerned about a spike in company failures, which would wipe out the interest from the riskier bond’s payments. But as always, the devil is in the details. Look deeper within the high-yield sector, and you’ll see investors are now asking for much higher rewards for holding the riskiest “junk bonds” – specifically those rated CCC (light blue line in the chart) – compared to the slightly less risky B-rated junk bonds (dark blue). Of course, it’s hardly surprising that CCC bonds boast higher yields than single B’s. They’re marginally riskier, after all. But historically, that difference has been slight. And over the past few months, the gap has been widening significantly. That suggests that investors are increasingly wary of defaults within the most speculative pockets. Now, that could be due to sector-specific concerns – CCC bonds are more common in media, consumer products, and high technology – or concerns that a tougher economic environment could wipe out companies with a weak spot financially. That's a worrying trend. As you can see in the chart, the last time we saw such a gap was right before the dot-com bubble burst. Investors poured money into highly speculative ventures during the tech boom, many of which carried CCC ratings. And as the sustainability of those businesses came into question, investors demanded much higher returns to offset the heightened risks. That led to a sharp spike in the yield spreads of CCC-rated bonds over B-rated bonds, a clear signal that investors saw potential for severe financial distress in those companies. That warning sign started flashing about a year before the bubble burst. A similar pattern unfolding today suggests that not everything is stable beneath the surface. The rise in CCC-rated yields indicates that the chance of defaults for the most speculative companies are rising, and is higher than the high-yield spread suggests. The risk from here is that the economy slows down more aggressively or borrowing costs stay high for longer than hoped, then these fears of defaults could spread to other companies – as it did before the dot-com bubble popped. More worryingly, that could bring trouble for private credit lenders, which loan to similarly smaller, debt-laden private companies. And since private markets may represent an important threat to our financial system, this is a risk worth watching. > Finimize

Not all events that shape the future arrive as breaking news. In 2025, some of the most consequential shifts happened quietly. These were quiet moments of changed direction that will have an impact for long. 1. Renewables reportedly overtook coal in global power generation. For the first time, solar + wind + hydro together probably generated more electricity than coal. Solar alone added more capacity in 2025 than coal and gas combined. 2. Global electricity demand growth hit its fastest pace in decades, driven by AI data centres, EVs and cooling demand. Power demand grew ~3.5–4% globally vs ~2% long-term average. 3. The world crossed 6 billion internet users and 1 billion active digital investors. Retail participation surged across India, Southeast Asia, Africa and LATAM. India alone added ~25–30 million new demat accounts in the year. Capital markets became a mass-participation utility, not an elite activity. 4. The dollar lost ground, not in price, but in usage. While the USD remained dominant, its share in incremental trade invoicing fell. USD share of global FX reserves fell from ~71% in 2000 to ~59% in 2015 and to ~57–58% in 2024–25. Energy trade using non-USD settlement rose from low single digits pre-2020 to ~20–25% of new contracts in selected trade corridors in 2025. 5. Global defence spending crossed $2.6 trillion and became structural rather than cyclical. Defence is now a long-cycle industrial theme like infrastructure or energy. Global defence spending has grown from ~$1.9 tn (2015), to ~$2.2 tn (2021) and to ~$2.6–$2.7 tn in 2025. 6. The private credit market quietly crossed $2 trillion; While public markets grabbed attention, private lending exploded. According to the Financial Stability Board, non-bank financial institutions now hold a larger share of global financial assets than banks. 7. Global fertility rates hit a new low, falling faster than models predicted. Policy incentives failed to reverse the trend. Labour scarcity, automation and immigration have become economic imperatives. 8. Australia is implementing a landmark law banning children under 16 from using social media platforms. If successful, this could fundamentally change the childhood experience for the next generation. 9. The UN warned that over 2.4 billion people faced water stress in 2025. Severe droughts in different parts of the world pushed Governments into emergency rationing, desalination investments and new water-pricing reforms. 10. India successfully tested key technologies toward its first in-space docking capability. Two satellites (SDX-01 and SDX-02) were launched and autonomously met and joined in orbit. SpaDeX is the technological "master key" that unlocks every major space goal India has for the next 20 years. The real story of 2025 is the subtle changes in trajectory in the areas set out above. A decade from now, many of these developments will look obvious in hindsight—and that is usually how structural change announces itself.

🌍📈 Surprising Relief in Global Financial Assets in 2023 – Global Wealth report out now. Read ➡️ Despite the backdrop of resilient economies and booming markets amid monetary tightening, global financial assets of private households saw impressive growth in 2023. With a surge of +7.6%, the losses of the previous year (-3.5%) were more than offset, reaching a total of EUR239trn by the end of the year. Yet, growth across the three major asset classes was uneven. Securities (+11.0%) and insurance/pensions (+6.2%) flourished due to the stock market boom and higher rates, while bank deposits saw a modest increase of +4.6%, one of the lowest in the past 20 years: 🔷 Bank Deposits: Fresh savings fell by -19.3% to EUR3.0trn, with banks receiving a mere EUR19bn, a dramatic -97.7% slump. 🔷 Securities: Inflows rose by +10.0%, with a notable shift towards bonds, especially in Western Europe (+84.3%). 🔷 Insurance/Pensions: Showed resilience with a global decline in fresh savings of just -4.9%. 🌐 Broad-Based Recovery: Unlike 2022, 2023 saw a widespread recovery in financial assets across most markets and regions. Notably, Asia and North America both grew by over +8%, with the US (+8.6%) outpacing China (+8.2%). 📉 Three Lost Years: Despite the growth, real financial assets worldwide only matched 2020 levels by the end of 2023. Regional disparities were significant, with Asia seeing a +26.3% increase from 2019, while Western Europe experienced a -4.3% decline. 🌍 Fragmenting World: The growth gap between emerging and advanced economies narrowed to just 2pps in 2023, a stark contrast to the 10pps+ gap seen until 2017. This shift underscores the evolving global economic landscape. 💡 Moderate Growth Ahead: Looking forward, we anticipate global financial assets to grow by +6.5% in 2024, driven by resilient economies and positive stock market trends. However, uncertainties around AI and sustainability, coupled with political volatility, suggest a modest growth rate of +4-5% over the next few years. https://lnkd.in/eCWZrXqK #FinancialGrowth #Securities #Insurance #Pensions #EconomicOutlook #FinancialAssets #Wealth #Ludonomics #AllianzTrade #Allianz

Fixed Income: What’s Hot, What’s Not, and What’s Just Plain Expensive Markets love a good narrative, but right now, the fixed income story is all about finding value in a world of tight spreads and shifting central bank expectations. So, where do we stand? 🔹 US Treasuries: Neutral. Our economists see no Fed cuts this year, with just a 25bp cut in 2026. Yields are drifting lower, but with growth slowing, opportunities for duration trades may be short-lived. 🔹 DM Investment Grade (IG): Overweight. When rates start to move lower, longer-duration IG credits should benefit. But with spreads tight, we prefer higher-quality credits (single-A and above) to protect against any downside surprises. 🔹 DM High Yield (HY): Neutral. Valuations look stretched for lower-rated names, but spreads are showing early signs of widening. We’re staying selective—short-dated BBs make sense for carry, but we’re not chasing risk here. 🔹 Asia IG: Overweight. The premium over global peers makes it hard to ignore, with Malaysia/India/Indonesia quasi-sovereigns offering a sweet spot of yield and stability. 🔹 Asia HY: Overweight. China property remains a wildcard, but spreads elsewhere in Asia offer a compelling pickup over DM HY—especially BB credits from India, Indonesia, and even a few Japanese issuers. 🔹 EM ex-Asia IG: Upgraded to neutral. Latin America and the Middle East remain diversifiers, but political risks keep us cautious. 🔹 EM ex-Asia HY: Underweight. Weak fundamentals, fragile macro backdrops, and unattractive valuations make this a tough space. Africa, in particular, looks vulnerable to further downgrades. The Big Picture? Stick with quality in IG, be selective in HY, and don’t chase risk where it isn’t rewarded. As Warren Buffett said, “Only when the tide goes out do you discover who’s been swimming naked.” Are investors too complacent on risk? Or is there still juice left in high-yield spreads? 

Supply signaling 2Q2025 was a tale of two cities: significant market volatility in the beginning of the quarter eventually gave way to a more benign market backdrop. As we outlined in our 3Q2025 Global Credit Outlook, we expect episodes of macro volatility will likely remain a prominent feature of the investing landscape over the medium term, as we navigate two-sided risks. Many market participants have been focused on how this dynamic backdrop is influencing a wide range of corporate actions. Two weeks ago, we took stock of the signals from M&A activity, and flagged that elevated volumes suggest corporates are moving ahead with their strategic needs – despite residual uncertainty. This week, we focus on debt capital markets issuance. As shown below, USD IG and USD HY issuance has been robust so far this year. We believe management teams are retaining a version of the conservative approach they used during the pandemic, pre-funding well in advance of scheduled maturities and taking advantage of open ‘windows’ to raise liquidity. We also explore the theme of dispersion, which has been consistent across corporate credit over the past several quarters. Our analysis of total return performance for USD IG and HY highlights how sector leadership shifted this year, in response to macroeconomic developments. #CorporateCredit #IG #HY #NewIssue #Refinancing #Dispersion #Sectors Please see here for more: https://1blk.co/40vBVGf FOR INSTITUTIONAL INVESTORS ONLY

Welcome to the new edition of the Fintech Wrap Up! This week, we’re zooming in on payments, AI, and emerging fintech trends shaping strategy and growth. Zelle continues to dominate U.S. peer-to-peer and small business payments, processing $1.2 trillion across 4.2 billion transactions in 2025—a 20% YoY rise. About 30% involves small businesses, and Early Warning is expanding cross-border with stablecoins. Banks face a trade-off: instant transfers increase fraud risk ($870M lost since 2017) but offer reach and speed; fintechs must decide between integration or alternative rails like FedNow or crypto. AI scaling in banks is governance, not data, with top institutions building reusable stacks driving ~10% revenue uplift. Agentic commerce is emerging, where AI agents may autonomously handle purchases. Merchants engaging early gain new channels but risk losing visibility, cross-selling, and control. Stablecoins remain mostly trading infrastructure: only $350–550B in 2025 was real-economy payments, despite $62T on-chain volume. On the corporate side, Mastercard Q4 FY 2025 shows platform leverage: revenue +15% to $8.8B, EPS +20%, cross-border growth strong, and value-added services scaling. UK fintech multiples favour infrastructure-heavy models; public neobanks face more scrutiny. The takeaway: fintech rewards strategic foresight, operational depth, and platform leverage—whether embedding Zelle, orchestrating AI commerce, or navigating stablecoins. Early movers in agentic commerce and AI-driven payments will likely set the next rules of engagement.