Paul Marcogliese's blog

Bank Debt Instruments: Risks and Opportunities for Investors

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Nowhere is the legacy of the 2008 Financial Crisis felt so acutely than among banks globally. The near collapse of the banking system led to an overhaul of the regulatory framework governing banks, known as Basel III. International banking regulators were determined to reduce the risk of banks collapsing in the future by making them more resilient, thereby reducing the need for a government bailout in times of crisis. One result of these regulatory changes is the transfer of greater risk from governments to investors, which has created potential new opportunities for fixed-income investors.

Fixed income in focus

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We have seen a substantial change in Canada’s interest rate landscape beginning in 2017 and continuing into 2018. During this period, the following developments occurred: The Bank of Canada raised the overnight lending rate to 1.0% from 0.5%; Canadian 2-year bond yields moved from 0.75% to 1.7%; and Canadian 10-year bond yields moved from 1.75% to 2%.
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