In general, we find both subordinated financials and corporate hybrids attractive. Corporate hybrids are a good tool for us to diversify our exposures.
Nevertheless, we find the best value in financials (European banks and insurers) given:
- – More attractive spreads, with around 500 bps on financials versus 200-300bps on corporate hybrids. We therefore see more upside on financials where spreads are extremely wide
- – Legacy bonds with significant optionality in subordinated financials that does not exist in corporate hybrids
In terms of earnings, click here to read a recent article on Q2 results of banks and insurers.
In short, fundamentals of the sector remain strong, as the Covid-19 impact is absorbed by earnings and excess capital has increased year-to-date – providing a very strong buffer for banks to protect bondholders.