ECB more hawkish than expected

Weekly Comment | Fixed Income

Lagarde says inflation “a unanimous concern” for the governing council and a March recalibration is underway; market has priced in 1 rate hike for 2022; risky asset correlation spiked with indiscriminate selling.

While short dated callable bonds were also impacted by the spill over of correlation, we remain firm in our thesis of short-dated Bank AT1s with high resets due to meaningful dislocation vs. SX7E performance.

Floating Rate structures (i.e. CLOs) so far more shielded from the vol seen in the rest of the credit market. We continue to see value as default rates should screen low and the elevated supply should abate.

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