Market Views

GLOBAL CREDIT BULLETS | Monday, 29th March 2021

US Infrastructure Bill.
We believe the much-anticipated infrastructure spending plan in the US gives the Biden Administration an unprecedented opportunity to reverse secular stagnation and raise inflation. Although details around the plan are yet to be confirmed, the broad market consensus headline number appears to be around $2-3tn to be spent over a period of 10 years, and is expected to be passed any time between end-Q3/start-Q4 2021. The bill is largely expected to be 50% deficit financed, with the remaining 50% being financed via increased tax revenues, particularly from high-net-worth individuals and large corporates. Whilst it will take several years for the effects of this plan to be seen on the real economy, we are hopeful that the long-term benefits on job creation, productivity and efficiency increases will outweigh the short-term costs.

Central Banks Brace for policy divergence across G10.
Since the outbreak of the pandemic, G10 policy rates converged to near zero or below. Now, investors must prepare for policy divergence, as economies exit the pandemic at different speeds. As the only G10 central bank, Norges Bank projects a first rate hike for H2 2021 based on their favourable economic outlook. However, it has no asset purchase programs to unwind, unlike all its peers which must taper first before hiking. The BoC and RBNZ may already start this year, while the FED may taper from 2022. Accordingly, besides for Norway, interest rate markets assign very little probability for any other rate lift-off this year. Only for Canada, markets see a chance of 31% – while for the US, it’s just 6%. For the FED, rate hikes are forecasted to occur between 2023 and 2024, but continued strong economic data could bring those estimates forward. Between USD and EUR rates, we believe that EUR rates are vulnerable and have material upside to catch-up, if the growth differential narrows and if Germany elects a structurally looser fiscal policy in September.

Virus update – Different roads to recovery.
Looking at Covid trends, several major European countries are still facing rising new cases, including France, Germany, Norway, Sweden. A similar trend can be seen in emerging markets, with daily new cases in India, Turkey and Brazil looking particularly worrisome. We believe the vaccine rollout remains the most important topic in the months to come, as encouraging results in daily new cases can be seen in vaccine leaders. In the UK, daily vaccination rollout re-accelerated, with almost 44% of the population having received at least one dose. In the US this number is 27%, with Biden announcing last week his intention to double down on his vaccine rollout goal. At current speeds we estimate the UK and US to vaccinate 75% of their populations by June and July, respectively. Europe’s vaccination rollout speed improved over the past week, however it continues to lag behind that of the US and UK as vaccination efforts had stalled due to supply constraints and logistical issues over the past weeks.

To read more on our latest views, please see our Silver Bullet | A World Without Safe Havens or visit our Insights section.

This document is issued by Algebris (UK) Limited. The information contained herein may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of Algebris (UK) Limited.

Algebris (UK) Limited is authorised and Regulated in the UK by the Financial Conduct Authority. The information and opinions contained in this document are for background purposes only, do not purport to be full or complete and do not constitute investment advice. Under no circumstances should any part of this document be construed as an offering or solicitation of any offer of any fund managed by Algebris (UK) Limited. Any investment in the products referred to in this document should only be made on the basis of the relevant prospectus. This information does not constitute Investment Research, nor a Research Recommendation. Algebris (UK) Limited is not hereby arranging or agreeing to arrange any transaction in any investment whatsoever or otherwise undertaking any activity requiring authorisation under the Financial Services and Markets Act 2000.

No reliance may be placed for any purpose on the information and opinions contained in this document or their accuracy or completeness. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in this document by any of Algebris (UK) Limited , its members, employees or affiliates and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions.

The distribution of this document may be restricted in certain jurisdictions. The above information is for general guidance only, and it is the responsibility of any person or persons in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. This document is for private circulation to professional investors only.

© 2021 Algebris (UK) Limited. All Rights Reserved. 4th Floor, 1 St James’s Market, SW1Y 4AH.