Hello, and welcome to the Credit Edge, a weekly markets podcast. My name is James Crumby. I'm a senior editor at Bloomberg. This week, we're very pleased to welcome Fraser Lundy, head of fixed income at Federated Hermes, based in London. How are you, Fraser, Yeah, very well, thanks thanks for having me. Thank you so much for joining us today. I'm very keen to get your thoughts on the markets. We're also delighted to welcome back Lisa Lee, who covers credit markets
from London. Great to see you again, Lisa.
Great to see you too, thanks for having me.
Also a bit later on the show, we're going to be talking to FRIEDA Silver, who covers the eighty one bond market for Bloomberg Intelligence based in Hong Kong. So do stay with us. But first, Fraser Lundy Federated Hermes. Great to have you on Credit Edge. Let's start with an easy one. Do you think that the US Federal Reserve has finished hiking? And how fast and deep do you expect them to start easning. I know it's a big one, but that's what everyone is talking about right now.
Everyone has a view and I wanted to start with that.
Yeah, I could see you smiling when you were asking that question there, So yeah, an easy one. Indeed, I think it's perhaps been slightly easier to answer that question than it would have been forty eight hours ago because of the data that we've been getting in most notably the CPI print, And you know, I think it is starting to mount up the evidence to give people conviction
to say that we are now at a peak. So I think the harder part of the question is more related to the second part, which is the timing and extent of cuts to come. We do think actually there is scope for disappointment here in the sense that whilst it looks like we're traveling the right direction, now, you know, it's pretty likely to be bumpy. And I say that because this has to This has not been a normal
cycle by any stretch. You know, when you think about the implications of COVID and wars and so on, making like for like comparisons that bit difficult, which means the data is going to continue to be pretty jumpy and
hard to read from a trend perspective. So to the extent that people are becoming a little bit too you know, over a confident in that cut progression into next year, and we're maybe getting there that there is some scope for disappointment, but you know, bigger picture in longer term that that is where we're headed.
Yeah, we've seen some big calls this week. UBS expects the FED cut rates by two hundred and seventy five basis points next year. That's almost four times what the you know, more than what the market's pricing right now. Morgan Sandy expects easing to start next June. Goldman maybe later in the year, but everyone is kind of getting more excited about easing starting next year. As you say, it's kind of the pace of it, and when it
happens could be some big disappointment. But then from there, you know, because this is a credit show phrase, it where do we go from here in terms of credit? How does that inform your credit view?
Yes, so, I mean, I think what we're thinking about at the moment from a more credit specific perspective is that the volatility markets, as so called fear gauges, I think is one of the most interesting things in the sense that equity and credit volatility are are pretty low here. If you look at the vics, for example, in equity space, I think we're sub fourteen right now, which is well
below long term averages. The one outlier remains interest rate volatility, which, as we've just been talking about, is elevated because there is still some uncertainty around timing of peak and cuts
to me in credit. There's quite a lot of sub sectors that have been disproportionately hurt by that inflated interest rate volatility regime over the last year eighteen months, and it's there that we think you're likely to see most of the benefit from what we think is going to be a movement of that pendulum from essentially inflation concerns
towards growth concerns. You know, obviously, the longer we are at this higher for longer state of play, the more punishing it is going to be, inevitably for both consumers and for corporates in terms of earnings and balance sheet degradation. But actually the areas that we think are perhaps most interesting are ones that should be more shielded from that direct sensitivity, sensitivity to the underlying economy, because they tend to be areas of the market that have been hurt
more by that interest rate volatility. So, you know, we don't think things are going to be getting easier from here for corporates. Actually far from it. We think there is going to be an inevitable increased headwind as companies start to think about refinancing to the new normal of
much higher coupons. But there is a sufficient amount of the credit spectrum out there that I still think is priced quite interestingly that as long as you are not falling into the trap of thinking that there's going to be a rising tide floating all boats and you are quite discriminate when it comes to credit quality and security selection, I think it is still a pretty constructive environment.
Is that a global view or do you have particular regional biases?
Well, for the most part, it is a global view.
I would say though that in the US, where the economy is and is likely to remain more resilient certainly than it is here in Europe, there is something of an offset to that from a credit perspective, which is that a lot of those gains or benefit I think go to shareholders first through more equity friendly behavior from those corporates, and we have seen and will see I think a lot of share buy back activity, hiking of dividends as well as you know to some extent debt
funded M and A, and I think those things are more prevalent in the US, and I think just you know, again, sometimes taking a step back, people forget that in credit we don't like things to be too good because when times are too good, you know, that's when you need to be in equities frankly, and actually we love a muddle through. So you know that to me essentially cancels out the gains that you might have thought would be there for the US versus Europe or or the rest
of the world. So to me, it's more about sector specific and credit quality specific that I think is the differentiation.
So you say credit quality, would you go lower under a skill would you so high your bards, leverage loans or would you prefer stay more higher graded investment grade given the macro environment and then the fact that we might be a peak.
Yeah, I mean, this has been an incredibly interesting year because despite what everyone might have thought at the begin the year, you've seen some pretty outstanding returns from the very lowest quality of credit, particularly triple C rated credit, which I believe is still double digit returns here today
as of today. Know that is something that I think most people would be very surprised to have heard at the start of this year, and it's been a combination of the fact that recessionary fears have been delayed and or canceled, depending on your view. But also there's a technical element to this, which is, you know, perhaps less appreciated, the market itself is shrinking. You know, high yield as an asset class is shrunk roughly ten percent in the
last year. Most estimates have it shrinking again by another five next year, and essentially that means there's less stuff to buy in a market where things have proved more resilient than what most people thought. Now. I don't think that's going to continue forever, and I certainly wouldn't want to base a constructive view on triple C credit on
the fact that there's less of it to buy. And actually there is an element of that market that I think will also end up being paper gains, only in terms of what that has been achieved this year, you know, private credits emergence has been an interesting element of that as well. Generally speaking, there has been less M and A and LB activity this year, but what activity there has been has seen a competing source of funding for that, and again that's fueling this shrinking of the market. So
there are always going to be exceptions. But I would say at this point that you know, being higher quality in your allocations from a multi asset credit perspective is likely to pay off well going to next year. And actually you don't really need to stretch in order to achieve some pretty meaningful yields here, which is another, you know, comforting thing to think about. When we think about relative value and credit, we try as much as possible to
extend the discussion beyond just simple spread. And obviously a lot of people will will will focus on spread. You know, what's the spread, what's the default rate? Are we compensated? I think for many end investors the yield number is just as important, arguably more important, and because of what's happened to underlying government bond yields and cash rates, the yields on offer today are very attractive versus history, and moreover, the actual cash price of the bond you're buying is
very low compared to history. I think the average cash price in hw you, for example, right now is about eighty eight cents in the dollar. Investment grade not dissimilar, maybe nineteen ninety one cents in the dollar. And this, you know, this makes the capital appreciation potential of the acid class that bit greater. There's nothing in the way of ceilings to hit, whether it be call option related
or otherwise. And you know, I do think that, you know, still being pretty foot on the gas, but foot on the gas in the higher quality segment of the market is the right way to play this.
You notice that the levi's loan market has been shrinking this year, and a lot of that has to do with the rise of private credit, which which many people are saying, so the goal an age of private credit investors are very bullish on the asset class. Given peak race, do you think is still going to be the golden era? And tell me what do you how you think through the interplay of private credit and leverage loans.
Yeah, I mean, the leverage market is an interesting one because it gives you an insight into the immediate effect of that coupon change that we are experiencing because of underlying rates. Because it's a floating rate instrument, the interest coverage ratios that you see today have already taken the full brunt of that pain. Whereas asset classes like high yield and investment grade being more fixed in nature, haven't
yet to any meaningful degree. So there has already been a decent amount of pain in there, and I would say similarly, some of that has been not fully absorbed in terms of market prices because the market has been shrinking, there's less of it to buy, and it's been artificially propped up to some extent. The Again, I would say that the differentiation there is not as pronounced as I would have liked like it to be in order to
be more constructive. In the leverage loan space generally speaking, is dominated by you know, private companies and financially levered companies, and the other thing that concerns me is we're coming in off the back of a decade or more of continuously declining covenant quality, and you're already starting to see that take effect in terms of the low recovery rates that are being realized on restructuring and default scenarios in
the levers loan market. Now, it's not moving the needle yet because the default rate is only you know, one two percent, but we are going to go to three and four and possibly five and above, and you know, if you are experiencing recovery rates in the event of default that are say, half what they might have been long term history wise, then that becomes quite painful from a loss given default perspective, and suddenly, you know, that extra premium that you thought you were receiving in terms
of spread quite quickly gets eaten away at. You know, private credits emergence is another very interesting one, and I do think that you can argue that in normal market conditions it's probably a positive for the public market space in the sense that it's an additional potential source of funding and therefore another area that more stress corporates can can look to to pull at. And it's also shrinking our market, so it's adding that technical positive as well.
There is obviously some potential concerns and red flags about it as well, though, which I think would be more relevant in a more dysfunctional market. You know, people estimate that private credit has now reached something like a trillion dollars in size, which puts it roughly the same size as the US high you market. Now. It took fifty years and more for US hih yield to get to the size it is today. Private credit barely existed ten
years ago. That on its own to me is something of you know, a concern or something to be monitored, as is obviously the opacity of the returns and frankly the opacity of the fundamentals because it's not a rated asset class, but where it rated, I would imagine that the likes of SMP in modies would probably rate its
single BEE or thereabouts. And you know, as we know from the public market side, anything in single B space is currently undergoing a coupon shift from three four, five six percent to nine ten, eleven, twelve percent, and that is not going to be absorbed cleanly and easily. And the lack of lookthrough is something that I find it quite difficult to have conviction on.
So do you expect a lot of defaults there? I mean, we might not even see them because the lenders just keep extending, right well.
That is part of the problem related to loose covenants in general, is that the ability to as they say, extend and pretend because covenants are loose enough to do so, means that eventually, if there is a restructuring, that the recovery rates that are that bit lower. And actually I think if you look at the high YO market, which has better data, there's a very large percentage of the
defaults that happen are companies that have previously defaulted. So if you're not very good to start with, then you know, it's difficult to reinvent a bad business essentially. So you know, all these things, combined with the performance that that low quality has had year to date, give us quite a high degree of confidence that it's an area that you can confidently not invest in materially here and focus on higher quality.
Oh, you mentioned recoveries, and they've been shockingly low in the US for the leverage low market, loan recoveries are down at ten to twenty cents, and many people attribute that to some most called lender and lender violence, where sponsors and some lenders push down other lenders. We haven't seen that yet in Europe. Do you think that that will never come to the shores or do you exp that are you braced for it?
I don't think there's any significant reason why it wouldn't come here. I think this is really to do with data set and size of sample, which so far has been quite small. As I mentioned, you know, default rates so far have been relatively small. Now there's more of them in the US generally because the US is in aggregate a lower rated asset class and it has more
percentage of triple c's to start with. Now, triple C credit I think fifty percent of the time doesn't make it to maturity, you know, from issuance, which means that you're never to be going to find more of them in that part of the market. Now, through a recessionary period where default rates increase, you're going to get a
bigger sample pool. And I don't think there's a significant difference when it comes to covenant language to suggest that Europe would be in some way immune to some of that type of behavior.
So you do sound quite cautious phraser a role. I mean, obviously wea credit people, so we ah cautious naturally, But do you feel that we are that we have just delayed the big blow up that we were somewhat fearing at the beginning of this year.
No, I mean, and actually thanks for pointing out that, because I don't want to appear too cautious. I think it's important to remember that most of what we look at is perfectly fine in terms of its ability to weather through somewhat harder times, and in fact, you know, if you're talking about investment grade and the vast majority of the double B space, let's say, declines of five ten percent of EBITD something like that, you know, as
a mild recessionary. If that type environment, which is probably most people's case for going to next year for most of those companies, if not the vast majority of those companies, all that means is dialing down their dividend payments, dialing down share buybacks, you know, maybe holding off on debt funded m and A. It's you know, it doesn't need
to be more than that. Having said that, you know, I think when you're going into that type of mark environment, it's important to think about the premiums that you're being paid for different types of company. So, you know, real sort of laser eye attention on cyclicality, premium, country premium,
the premium for owning a private company versus a public company. Obviously, you know, from that perspective, I think that's a really important one in the credit space because going into harder times public companies, I think people sometimes forget it's that bit easier for them to raise other forms of capital you know, they can do a rights issue, they're more readily available to do non core asset sales and so on.
And I think, you know, these are all ultimately not great if we were sitting here having an equity podcast, frankly, And I do think that some of these grafts that will show you right now that yields and credit are significantly above yields of dividend yields, they to me, from a more multi asset perspective, would suggest that people need to remember that you know, you can pay a dividend,
but you must pay a coupon. And that feels like that's the type of environment we're going to be going to next year.
So to use your phrase the laser like focus, I mean, where are the best opportunities right now? You have a really big broad remit, you look at everything. What is the best thing to invest in, you know, by product, by geography, by sector?
Yes, I think I think probably the two things that we're trying to hone in on are what has been hurt by interest rate volatility and what's been hurt by just generally this rise in yields that has already taken that pain. So that brings me to areas like, you know, the long end of the investment grade market where cash prices are phenomenally low and you're not talking about having to buy bad companies to access that. You're you're buying
real blue chips at fifty and sixty cents on the dollar. Here, That to me is an underappreciated advantage when it comes to convexity, when it comes to jump to default risk, when it comes to access to upside event risk. And again, you know, CFOs of companies are not stupid, and they are knowing that that they're going to be in harder times. I think they will be more incentivized to look at their cap structures and think about being more preemptive and opportunistic.
So I think you're going to see more in the way of tender activity, can sense solicitations, early addressing of front end bonds. All that leads me to believe that focusing on cash price of securities is going to be really important. Away from that, I think areas like the corporate hybrid space in Europe are particularly interesting. They have suffered somewhat in sympathy with the pain that eighty one
financials have had in Europe this year. Even though they have nothing really to do with financials or indeed that security type, other than they are another form of subordinated perpetual debt. That part of the market, to me, is quite dislocated from straight debt, and I think will ultimately be one of the major beneficiaries of normalized of that interest rate volatility regime. Another one actually will be the
eighty one market itself. And you know, you've seen some recent primary market deals, probably most notably the UBS deal, which underlines just how big the pent up demand is for yielded paper in that space. In fact, from what I read, the order book on that deal equated to nearly twenty percent of the size of the entire market for eighty one's never mind UBS. So you know, those are two areas that I think it's worth leaning on here.
I think the structured credit space is also pretty interesting. Again, the floating rate nature of it means that it's now at some very attractive yields, and being able to access that complexity and illiquidity premium in lieu of more sensitivity to the underlying economy is something that I think will
continue to be an interesting thing to be done. And you are going to see more broad participation from a whole host of different types of investor base in that structure credit area continue and I think that will continue to add to the quality of that as an allocation.
Type, massive area multitude of sins. So what do you mean by structure credit here? Is it clos? Is it nbs, is it CMBs? What are you talking about here?
Yeah, I'm predominantly talking here. You know, if I was to choose within that spectrum, we would probably be focused mostly on the European CLO space in the investment grade parts of that cap structure. And from a risk reward perspective, if you look at where triple B CLO tranches are currently pricing, to me, there's a very significant premium to for example, I Track's crossover or CDX hig yield in terms of looking at some of the comparable spread in
public markets. And you know that won't always be the case, and I think it's important to be sizing those types of allocations appropriately. But the fact that they do not correlate that highly on a day to day, week to week basis with a lot of other things that we look at mean that they are official to an overall multi asset credit allocation. I would also say there are ears that we don't like at all right now, emerging market debt being one of them, just purely on a
valuation basis. But it's still worthy of its place, albeit in a small way, within a multi asset credit context, because of that decorrelation argument and being able to push your portfolio out that efficient frontier to get to a bitter return basis. I would say the same about leverage loans, albeit I think that you know, again it's now not the time to be leaning too heavily on that space.
So last question praise before we talked to pre de silver Ritt Bloomberg Intelligence about the at one market, what in a big global context, what is your biggest contrarian trade?
Well, I mean, I think where we are possibly most out of kilter with the market right now is from a sector perspective, and this is perhaps more appropriate from a US audience US investor base, but I've heard more recently people referring to the energy sector as a safe haven, and that to me is a big red flag. It has obviously performed very well essentially ever since the Russia Ukraine crisis kicked off and the fundamentals in that space
continue to be very robust. There's a lot of M and A. There's not a lot to dislike, frankly, but in credit space again, I feel like we're at the point now where it's a little bit like pre the energy crisis of twenty fourteen fifteen in the US space, where it became very shareholder friendly very quickly, and from a valuation perspective, it's never really been this expensive relative
to the rest of the market. And you to me, I think if you look longer term, stretched this back over twenty thirty fifty years, energy essentially is a global GDP play. I mean that has a beta of one to that and if we're going to go into tougher times or maybe we stretch into recessories fact times, who knows. I find it very hard to believe that energy as a sector will continue to be as expensive as it
currently is. So that is an area that we are holding essentially nothing in or close to nothing right now and expect it to underperform next year. I don't think you'll find many people who agree with me.
Is that ESG related at all?
Red Well, I think there's an element of ESG thinking comes into it. But really this is more than that. This is about I think, I guess to some extent connected from a governance perspective, but I do feel that in that space the incentives to be more short term shareholder friendly are a little bit too high. But really it's I think, to do with short term memories as
well as much as anything. The fact is it's done well for two three, four years, and therefore people are starting to lean on it so heavily that they're actually changing their opinion of it. As I said, become a safe haven asset class, which I think is it's not likely.
To be so. Talking about safe haven, what asset classes would you consider safe haven? And you mentioned eighty ones which are sort of more yieldy product in the financial seeking, Yes, return seeking perhaps not a safe but you take on bank financials and financial credit and whether given the way the economy is going it is it is a lever play on the economy, and whether you would go into that space maybe in the I grade section.
Yes, I think the eighty one space is going to continue to be very volatile. It is a gog asset class. As you said, it's deeply subordinated, but banks more generally are trading pretty cheap by most historic standards, and you can triangulate this in various different ways, but I think you know, versus corporates, they are here, you know, attractive levels. I don't think you can say there's much in the way of the equity friendliness risk that we are been
referring to elsewhere. There is a lot of I think implicit backing from politicians and regulators to ensure that banks continue to function and lend at a point when lending
surveys would suggest that that's not looking great. And you know, if we are going to avoid harder times next year, we do need the banks to continue to be as facilitating as possible, and so we do remain pretty constructive on that space, but again not expecting it by any stretch to be a safe haven and needs to be sized appropriately.
Great stuff. Raiser Lundy, head of fixed Income at Federated Hermes in London, thank you so much for joining us.
Thank you very much.
And Lisa Lee with Bloomberg News in London, thanks to you again. Brilliant to see you and thanks for all your questions.
Thank you so much for having me again.
Read all of Lisa's great scoops on the Bloomberg terminal and of course at Bloomberg dot com. So, as I mentioned earlier, were joined again by pre Da Silver with Bloomberg Intelligence in Hong Kong.
How's it going, pre James, My pleasure, glad to be back.
Great.
Last time we were on the show, we were in the midst of a banking crisis which claimed Credit Swiss as one of its victims. Very volatile times. Amazing to think it was only just earlier this year, but at that time, I mean this was an April I think we taught you made a very bold call at that time, predicting that eighty one's would make a swift comeback, and you were right. So this is your victory, lap Prix.
Thank you so glad to glad to get that call right.
So right now, let's look at the market and see, you know what's ahead. The dollar eighty one market is very active. We've seen quite a lot of deals. But I wanted to just gently break everyone into this market because there are some people still that don't really know what this is. So if you can just kind of describe, you know, what it is and why has it been so hot in the news this year.
So in eighty one stands for additional TiO one securities and banks issue these securities for regulatory capital purposes, and banks in regulated entities they need to meet certain capital requirements, so this helps them get there, and it's a cheaper alternative for instead issuing common equity, So that's the incentive for banks. For investors, the attraction here is a higher yield.
The eighty ones that are currently in the market are offering close to ten percent, which is quite high compared to where the US treasuries are and compared to our regular investment grade corporate bonds are trading. So from an investor standpoint, it's an opportunity or an avenue so to speak, to generate a higher return.
But for that higher return, you're obviously gonna have to take on bigger risk, and the big risk as you get wiped out as you did in the case of Credit Swiss earlier this year. How has that affected the sentiment?
So after the credit Sweeze debacle, so to speak, the market crosse effect actively shot and no issue could come to the market, as we discussed at that point, and right now banks are able to come and issue eighty ones without any major challenge. What's different, so to speak, is the rates that they're paying. So prior to the events around Credit Suis and the collapse of SBB, eighty one as an asset class was yielding about call it two and a quarter percent more than US treasuries. And
right now things have improved. The spreads are narrowed, but eighty ones just as a whole are still yielding about two point six five maybe close to two point seven percent over the treasuries. So the market conditions have improved, but they haven't made the full round trip back.
But why do you think the market came back so quickly? Was it just demand?
So? I think a couple of things. One the key thing here is the opportunity to custer sitting on the sidelines. If you're an investor, you have somebody issuing at ten percent with the ten percent coupon. If you don't participate, yeah, it's going to create performance issues down the road. And
I think that's a that's one key driver. The second is a whole full court press so to speak that the the bank especially made to kind of get the message across that credit speez might be an isolated kind of an event and that kind of behavior may not be then arm.
So after that wipeout by credits Waze and I think there are still some lawsuits, right but but are there any kind of other implications on the eighty one market? Have structures changed of you know, is there anything new and in the guarantees all the paperwork that gives you more safety in the event of a credit swis type event.
With Credit swiez, what happened was when Finnma decided basically said the as a class needs to be wiped out. It was. It was a complete write down, so investors
lost everything. And now what the issuers are trying to do and kind of come up with an alternative, is to do the other more popular avenue, which is to convert to equity, and that helps recapitalize the bank the issuer, but they're doing it in a more investor friendly manner because at least this way you get common equity instead of you're eighty one, but you're not getting completely written down and stuck with nothing. So that's a the whole.
Bit that would been in the event of some kind of issue, some kind of problem with the issue.
Right, Yes, in the event of a RTE down or in the event of a non viability event.
Okay, but you'd be getting equity in an entity that you would hope has some value.
Yes, that's these af are were the instruments. So ideally this all goes to show that you can't be shoveling money. People need to roll up the sleeves, do the credit work, and spend some time understanding what you're buying and paying attention to your holdings.
So, as we discussed earlier this year, you know bold calls from pre to silver, you talked about a comeback for the Japanese banks in the eighty one market. That happened, is happening even more now what's going on there?
Yeah, So back then I think the Japanese banks were the most likely to issue because they could issue into the end market and that was almost as somewhat island in its own way. Now what's happening is back in September, we kind of went out and made another ball call saying Japanese banks will need to issue up may issue dollar denominated eighty ones and two months later Behold MUFG issued the first ever dollar denominated additional T one by
a Japanese bank, and so that's a big development. And the reason I think it's a big development is because the investor base for eighty one s tends to be a lot of private wealth, private banks. And so if you're a non US investor, and if you're buying US eighty one equivalent the US preferred stock, you're subject to federal tax withholdings. That makes it a lot more likely that the private welve private banking crowd is overexposed to
European banks and European bank eighty ones. And so when the Japanese banks are able to now going to issue dollar denominated eighty once, that opens a whole new avenue, a whole new almost a sector that investors can now invest in.
And is there relative value against Europe in Japan.
In terms of relative value? Some of the European banks are offering much higher coupons. So sub geners in the market they issued at ten ten percent ubs which bought Grady Sweez came to the market with a jumbo size three and a half billion deal that is paying in nine o'clock out of percent coupon our dividend, and Barclays is also in the market that looks like that. My price in the high nine, So quite a bit of the European eighty ones are coming up with higher coupons.
I think where the value in Japanese eighty ones is as a diversification option for investors. You may not get close to ten percent, but there's a benefit to having a diverse portfolio. And the other thing that if I may add is Japan has a different regulatory set up, our structure, and that may create that makes the eighty
ones less risky. So, without getting too much into the weeds here, Japan's Insurance Deposit Insurance Act allows banks to get capital from the public sector without causing a ride down of capital securities like eighty ones, So that is a key differentiating factor and that needs to get recognized. So in other words, Japanese eighty ones are less risky than a similar security issued by a European bank.
And back to the issue perspective here, you're saying that it's it's attractive for an issue right now to issue. I mean, is it cheap for them to on a relative basis for them to raise that through the eighty one market.
Form a Japanese bang. The alternative is to issue common equity. So when you think about what's cheaper costa common equity or cost of an eighty one. And if a Japanese bank were to come to the based on where MFG is trading almost seven and a half percent, European banks close to ten. Still it's cheaper than common equity. So I think from an issue standpoint, it's still attractive to optimize the capital structure and have eighty ones to the optimal level.
So we expect issuans to continue at this pace through next year, do we?
Yes? Right now, what you're seeing is a little bit of catching up because the market was frozen for a while and nothing got done. But once the catching up is done, I think you'll still start to see and one of the drivers a this is the Barcil three reforms that are taking place globally that causes leading to an increase in respected assets. Many more need for securities such as eighty ones and subordinated debt, which are t your two notes So.
Okay, great, So to wrap it up, pre what else are we looking at right now? And what were your bold calls for twenty twenty four? You've been proven right in the past. We trust your view. What if you should we be looking at here.
Thank you James. Thanks for the kind words. In terms of we expect, we expect more eighty one from Japanese banks. That I think is we are on track for that the basil free reforms and are probably going to lead to an increase in issuance for most banks globally. And the other kind of lingering thing is Chinese banks. They need to start issuing bail in debt at some point and the deadline is basically in the next year, so we should see a lot of teap of bailing debt been issued by Chinese banks.
Although it's hard to see a lot of investors out in Europe and US clamoring to buy Chinese bank bail in debt, but I think that's going to be a story out in Asia.
Who would buy it.
A lot of it is going to be issued on shore to the domestic Chinese market, and even the dollar de nominated that if you go by the track CREC card, it's going to be probably bought by the national team, so I think they'll follow suit.
He you two great stuff. We'll definitely be watching your research with great interests pre to Silver with Bloomberg Intelligence in Hong Kong. Thank you. So much for joining us.
James, thank you very much for having me.
We look forward to having you back on the show very soon. And thanks again to Fraser Lundi, head of fixed Income at Federated Hermes in London, as well as to Lisa Lee from Bloomberg News. Read all of Lisa's great scoops on the terminal and at Bloomberg dot com, and please do subscribe wherever you get your podcasts. We're on Apple, Google and Spotify. Please give us a review, tell your friends, or email me directly at jcrumb eight at Bloomberg dot net.
That's J.
C ro O, M B I E as in my surname and the number eight at Bloomberg dot net. We do want to hear from you. I'm James Cromby. It's been a pleasure having you join us again next week on the Credit Edge.