A report from Morgan Stanley has demonstrated precisely how great the impact of Basel II will be on demand for corporate bonds and securitization. Ever since the wording of Basel II was completed and published in June this year, it has been obvious that the legislation will encourage banks to invest in bonds over equity and investment grade over junk. But the scale of that incentive has not been apparent until now.
Morgan Stanley calculates that a bank’s rate of return on equity under Basel II for A-rated corporate bonds will increase from 4.09%
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