Monthly comment

Financial markets traded sideways in January. Within the subordinated debt market of financials, spreads remained stable around 460 bps. Prior to Covid-19, spreads were slightly above 330 bps. Therefore, we believe that valuations of securities within our portfolio are still attractive. This is despite the fact that financials are starting 2021 from a strong position. For banks, capital ratios and excess capital increased significantly during 2020. Asset quality also surprised to the upside. Q4 earnings season is underway and we are currently seeing a continuation of this trend. We believe this highlights that European banks should be able to withstand any negative surprises during this year, such as more lockdowns.The continuation of central bank easing, as well as strong fiscal support and vaccination programmes, should be supportive for the valuation of our securities. With spreads of around 460 bps, valuations of our securities are still significantly wider than pre-Covid-19 levels, and therefore they should benefit going forward.

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