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It is early February 2016 when Larissa Knepper, a fixed income trader at Nomura, takes a call from a client asking her to bid on a €5 million piece of Rabobank additional tier-1 (AT1) paper.
It’s a jittery time. Deutsche Bank’s AT1s are down to the high 80s. But this is an important real money account – the kind of name any trader would like to be doing more with. Unlike many of her peers, Knepper has gone into February with a short AT1 position. And this is Rabo, the strongest of the strong, so no problem.
Knepper quotes where she thinks the market is and the block trades. In the usual way, her next call is to find out from her client what the cover bid was. They can’t tell her, because there was no cover. For €5 million of Rabo? That wasn’t normal.
And it carried on. Other rarely-seen clients started to come out of the woodwork, struggling to find bids. Covers, when they existed at all, were “crazy”, says Knepper.
One of Deutsche’s AT1 bonds, its €1.75 billion 6%, would trade down to almost 70 before the middle of February. That was according to the charts – traders say they saw it as low as the mid 60s.
Contingent convertible (CoCo) bonds of other names – anything with a question mark and even a lot without – would be caught up in the mess, a rollercoaster that would hurtle along for much of 2016.
That February something certainly looked broken in AT1 capital. Was it Deutsche or the market? Or both?
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Where to place the origins of the asset class depends on who you ask. Some go back to the introduction of tier-1 securities in Basel I.
Others look to the £3.3 billion of enhanced capital notes that Lloyds Banking Goup issued via an exchange offer in December 2009. Those were lower tier 2, but many see them as the first real regulatory trigger instrument.
Still others cite the high trigger contingent convertible tier-2 deal that Credit Suisse issued in February 2011, some $8.2 billion of buffer capital notes. It was certainly a landmark, being the first equity-convertible new issue, rather than one offered through a pure liability management exercise. By that time Rabobank had also completed a senior contingent notes offering, but with write-down rather than equity conversion since it was a mutual.
CoCos can look pretty varied but share a couple of characteristics. They have one or more triggers for loss absorption, mechanical or at a regulator’s discretion, typically using a minimum capital ratio or a judgement as to when an institution has reached the point of non-viability (PONV).
They also have a loss absorption mechanism, which is broadly either write-down (temporary or permanent) or conversion into equity.
By the middle of 2013 there had already been about €70 billion of bank-issued contingent convertible capital instruments after the crisis, according to data from the Bank for International Settlements. But it was only around that time that issuers began to sell deals with the trigger point set at a common equity tier-1 (CET1) ratio of exactly 5.125% – the minimum trigger for the bonds to qualify as AT1 under the European Union’s Capital Requirements Directive (CRD IV), which also dictates that they must be perpetual.
Most observers take the starting point of the market to be the first benchmark AT1 deal to tick all the boxes of CRD IV – namely, BBVA’s $1.5 billion 9% bond issued in May 2013; a deal that was called by the issuer at the first opportunity on May 9, 2018. According to CreditSights, the universe of European bank-issued AT1 debt now stands at about €140 billion-equivalent.
Knepper now works as an analyst at CreditSights, but when the CoCo market got started, she had been trading old-style tier-1s at BNP Paribas.
“The expectations were pretty high at the time and traders were excited at the prospect of a new product,” she says. But for end-investors, the structure presented challenges.
Deals that involved the possibility of equity conversion meant that investment mandates had to be flexible enough to cope. At most conventional fixed income accounts they were not, meaning that the paper found its way into the realms of hedge funds and private banks.
Even principal write-down instruments presented difficulties. Portfolio managers in the real money community often had the kind of demanding risk managers that would ask awkward questions about the structural niceties that might lead to losses. The answers would often be vague.
“The risks were often not clear in investors’ minds,” says Khalid Krim, head of European FIG solutions at Morgan Stanley. “The problem was, when the banks were asked to provide an answer, they were not clear either, as they did not have all the certainty on how new regulations should be interpreted.”
For those that could stomach the product, there was action to be had, particularly once the Basel III-compliant deals got going.
“The market was incredibly active,” says Knepper. “In the first couple of days [after the BBVA deal], I traded a couple of hundred million dollars or more.”
There were a few long names that did jump in early. Pimco launched its GIS Capital Securities fund in 2011 to buy subordinated debt from FIG issuers, including AT1 CoCos. It now has over $8 billion invested, about half of which is in AT1.
At about the same time, Algebris Investments launched what remains, even now, one of the very few dedicated CoCo funds. Old Mutual launched its own as recently as August 2017.
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In the early days of AT1 issuance, those institutional long-onlys that could play were particularly prized by issuers because they would buy big in primary and then keep buying. The BBVA deal was allocated 60% to asset managers, 20% to private banks and 20% to hedge funds.
“The big players really drove the market direction,” says Knepper. “Most dealers ended up responding to them and people were quite reluctant to be short. How would you get the bonds back if one big investor owned most of them?”
As with earlier bank capital paper, hedge funds were still interested. If they were lucky, they might get half of a deal from a name less liked by asset managers, but they helped to drive book sizes. Subscription levels were hefty – the book for BBVA’s debut hit nearly $10 billion.
Asian private banks also piled in for the yield. Investors had become more comfortable with European periphery risk, particularly when it came with such juicy coupons. Greece seemed to have been through the worst; Spain had set up its Fund for Orderly Bank Restructuring to sort out its banks.
The scale of demand frequently allowed pricing to be tightened, but the asset class was still coming fairly wide, given its untested nature and the trouble investors were already reporting in assessing exactly what they were buying beyond a high coupon. BBVA’s trade came under fire at the time for its four equity conversion triggers, with critics arguing that it had set an unnecessarily complicated precedent.
It was quickly obvious that buyers would need to assess every deal on its own merits, making it no surprise that the bulk were non-call five – issuers could at least agree on that. Novelty instruments are typically issued at the shortest tenors the seller can manage so as to start getting pricing points into the market. And AT1 would take a while to season; bank capital experts say it didn’t start to reach that point until 2015.
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At some point before February 2016, a shift in the AT1 investor base had begun to crystallize. Some observers trace it partly to losses suffered by hedge funds in the fall out from the collapse of Banco Espírito Santo (BES) in Portugal in 2014. Bondholders in Novo Banco, a new ‘good’ bank that emerged from Espírito Santo, were wiped out at the end of 2015 when their exposure was transferred to the ‘bad’ bank.
Others disagree, pointing out that it was long-only funds that lost the most in Espírito Santo and, in any case, the change had already started to happen. Yes, some hedge funds had been suffering at that time, but any shift in AT1 buying was more to do with traditional institutional investors becoming more comfortable with the asset class over the previous six months or so – or more desperate for yield. Specialized funds were also starting to get in on the act.
The shift was also encouraged by a move from a dollar market – natural territory for private banks in Switzerland and Asia – towards a euro market.
When it came to sourcing high-yielding AT1 paper, a worsening environment for hedge funds had a positive impact on long-only accounts looking to buy in secondary. Hedge funds that needed to raise liquidity had to sell, and one obvious asset class to dump was AT1s. Real money interest met hedge fund selling. Book unwinds offered decent business for dealers, with $20 million to $40 million chunks regularly looking for bids. Private banks, who had been in the asset class all along for its juicy returns, picked up the pace even further.
But the conditions were also set for problems ahead. Macro conditions were worsening.
“What we had from the fourth quarter of 2015 to the end of February 2016 was a rolling bear market,” says Gary Kirk, a founding partner at TwentyFour Asset Management and portfolio manager for the firm’s unconstrained funds. “Sentiment was poor and selling was indiscriminate.”
Kirk had been investing in the product since the BBVA issue in 2013.
Fuelling that rolling bear market was China, oil and everything in between. That autumn, China’s authorities had begun to talk in earnest of the transition from an economy built on manufacturing to one based on consumer demand – with a corresponding fall below the long-held growth target of 7%.
Oil prices had collapsed in 2014 and continued to fall in 2015. US high yield defaults rose as a result – nearly one fifth of US high yield index constituents at the time were oil or energy companies. Exchange-traded funds were forced to sell off in size. In December 2015, the US Federal Reserve started a tightening phase, with its first rate hike in 10 years.
On top of that, a zero rate environment had taken hold in Europe, something that raised fears in some quarters of the start of a bank solvency crisis – a fear that Kirk says he dismissed.
“I’ve been in credit over 30 years and looking at banks for that long,” he says, “and while lower rates have an impact on bank earnings, they also lower default rates and strengthen balance sheets.”
Despite the macro worries and questions over bank earnings, the AT1 asset class was holding up well into the start of 2016. Bank of America Merrill Lynch’s contingent convertible index was trading at around par, to yield about 6% – up about 50 basis points from the middle of 2015 but still looking robust, considering banks’ cost of equity.
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This performance had come despite a couple of notable early setbacks. The UK’s Financial Conduct Authority announced in August 2014 that retail investors would be banned from investing in the product. BAML had given the nascent asset class a fillip through the creation of its CoCo index in early 2014, but the bank also triggered a sell-off later that year by deciding that CoCos would not be eligible for its broader investment-grade or high-yield indices.
By early 2016, however, the asset class had not sold off as might have been expected and some investors were looking to take profits. Laura di Luca, a portfolio manager at Anima Asset Management in Italy since 2007, was one of those.
“AT1s were proving very resilient to all the volatility, so I decided to sell almost all my positions,” she says. “The technicals were not very strong, liquidity was starting to worsen and volatility was rising in credit and in equity and convertibles. But AT1 assets were still not correcting.”
It didn’t make sense and di Luca suspected it could not last. She had held about €70 million in AT1s, but, “even at yields of 7% to 8% there was no way I was being paid for the risk,” she says.
At least some of that risk was about to rear its head. A few weeks later she would be buying back some of her positions 10 or 20 points lower.
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The situation heading into 2016, then, was an odd mixture of a worsening macro picture but still strong real-money demand for the AT1 asset class.
The market had become increasingly one-way: dealers were being regularly lifted – trader jargon for having their positions snapped up by buyers.
“It was becoming quite difficult to source bonds and I was taken short because there was so much demand,” says Knepper.
That was in spite of one big AT1-specific warning sign at the very end of 2015, something that would turn out to be a catalyst for the turmoil that was to follow.
On December 18, the European Banking Authority (EBA) issued an opinion on the calculation of the maximum distributable amount (MDA) – the concept under CRD IV that meant regulators could prevent the distribution of earnings if a bank’s capital fell below a certain level.
Until that point there had been little clarity on how individual regulators would approach the matter, but the EBA opinion was unequivocal that MDA should be calculated on the basis of Pillar 1 and Pillar 2 requirements, and the CRD buffer requirements.
It took a while to sink in, but, once the usual New Year frenzy wore off, investors woke up to the fact that not only could AT1 coupons be caught within the restrictions, they also didn’t necessarily know what those were – Pillar 2 was far from transparent. The stage was set for the sell-off.
The atmosphere was already feverish on January 20, 2016, but an announcement from Deutsche that day shook confidence further. The bank warned the market that it would post litigation and restructuring charges that were expected to take it to a loss of just over €6 billion when it reported full-year results for 2015 on January 28.
In many investors’ minds, Deutsche Bank’s ability to service its AT1 debt now became a critical question – particularly now that the EBA comments had raised concerns around MDA. And it didn’t matter that Deutsche CFO Marcus Schenck had explicitly told analysts discussing its results that the bank believed it had AT1 coupon payment capacity.
Other things happened by extension: the buy side began to wonder if it had really understood the asset class’s coupon deferral aspects at all. And if some institutions failed to pay out, what did that mean for market confidence when it came to other types of funding for banks? As well as Deutsche, the big French banks and UniCredit were all talked about as firms that had little headroom on their MDA.
“The sell-off had already started before that because people were getting nervous about some institutions, but it really widened at that point,” says Knepper, who by now was at Nomura, having moved from BNP Paribas in the middle of 2014. “That was when you saw it spill over into the equity markets.”
Until then the volatility and fallout had been mostly confined to the AT1 market. But now equity desks were coming over to their fixed income colleagues to find out just what the hell these things were that were moving their market.
“Up to this point the equity market had not focused on payment risk in equity or AT1,” says Barry Donlon, global head of capital solutions at UBS. “Equity investors did not see MDA as a risk to dividends, while the credit market at that time saw it as a real threat to coupon payment.”
One banker recalls two separate meetings he had with the credit and equity desks at one client around that time: “The credit guys were selling their entire AT1 book, but the equity desk didn’t even know what the letters MDA stood for.”
Deutsche’s shares had lost almost a quarter of their value from the beginning of 2016 to January 21, the day after the profit warning, but they would lose another quarter by the close on February 9, falling more than 13% on February 8 and 9 alone.
That last drop coincided with the lowest point for the bank’s AT1 bonds – and came immediately after a statement by the bank that it estimated its payment capacity to be €1 billion, more than enough to cope with an upcoming AT1 coupon payment of €350 million on April 30. Far from settling nerves, the statement appeared to have convinced investors that they had been right to be worried.
There were technical pressures on the equity too. In good times, AT1s often moved in line with the rest of the credit market. And they moved as a block themselves. Hedging a position in one AT1 bond was pretty much a case of shorting any other. Alternatively, investors would use credit indices to hedge a portfolio. Credit default swaps were unsuitable because of the AT1 coupon deferral features that meant the paper could convert into equity without triggering a credit event.
But in volatile times AT1s quickly traded more like equity. Hedges using credit indices risked becoming so uncorrelated as to cost the investor a fortune. Hedging via equity derivatives, perhaps out-of-the-money put options – as some investors had done even in periods of low volatility – was one possible approach, as was simply shorting the institution. Either way, it all put further downward pressure on stocks.
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Adrenalin can give grim situations a visceral appeal; Knepper remembers the feeling well.
“It was incredibly exciting coming into work to see what was happening,” she says. “But I was short. I think if I had been long I would have been a lot more stressed.”
Some were, and rumours swirled of the disasters. One trader at a big European bank lost perhaps $60 million, so the story went. Forced to demonstrate liquidity, a big European fund sold off 10% to 15% chunks of each of the holdings in its CoCo fund – a move that some say was one of the catalysts for the broader sell-off.
It was when Deutsche AT1 paper was getting into the mid 80s in late January that people really started to worry. The fall accelerated.
“And then suddenly people weren’t trying to sell the Deutsche paper anymore because there was no bid,” says Knepper.
So everything else suffered: investors offloaded anything that would sell, like Rabobank or the strong Scandinavians.
For dealers, the problems ramped up when the Asian private equity bid evaporated – or reversed. Asian accounts, which typically wanted dollar paper, were known for two things: buying or doing nothing. Now they were selling.
The usual market dynamic had been distorted, making life distinctly uncomfortable for traders.
“If you had been lifted in your dollars and taken short, you would hedge with euros,” says Knepper. “But if the Asian accounts then stopped buying and you were left net long euro while it was tanking, then you were stuffed.”
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The bid-offer widened but didn’t completely blow out. The typical spread for a new issue was 10 to 15 cents, compared to perhaps 2c to 5c for senior debt. And once a new issue settled down, most people made half point markets. During the worst times in 2016, Knepper moved to one point markets, but there were others as wide as two.
When volatility was highest, sizes of €2 million were trading quickly. There was no point fishing around for a long time for bids, says Knepper. The market was starting to become increasingly electronic and at times like this it could hurt investors. Here’s why. An investor wanting to sell a block of bonds had a typical procedure to follow. Anything sizeable – certainly anything over €5 million at this time – would still tend to be executed via voice, but investors would still often gauge dealer interest through electronic.
They would put out a request for quotes (RFQ) through a platform like Tradeweb, Bloomberg or Market Access and direct it to, say, five dealers. Then they might either complete electronically or approach the best bid and trade by voice.
The problem is that in difficult markets dealer appetite tends to fade away. The actual price shown to the seller could well be lower than the originally advertised price if the block to be sold is larger than the market the dealer is advertising. The seller might want to offload €3 million while the dealer is quoting a price for €1 million, for instance.
The market will move to reflect the selling interest. The transparency that comes with electronic means that levels move around a lot more quickly without necessarily much volume being traded.
If the investor does not want to or has not been able to sell, he now has to adjust his mark. And so do other dealers: banks routinely test marks by looking at pricing sources like CBBT – Composite Bloomberg Bond Trader, a composite price on Bloomberg’s Fixed Income Trading platform. Staying out of line is difficult.
Meanwhile, the investor is still trying to offload his block. He sends another RFQ but ends up having to mark it down another one or two points.
“And so it goes on and on – it’s a spiral,” says Knepper.
You could sit it out or try to sell something else if you needed the liquidity. That’s often where the contagion came in.
With investors rushing to exit the names perceived as weak, or else to sell anything that would still sell, a synchronized price effect took hold. Knepper and others began to wonder if the asset class itself could survive the turmoil or if investors now considered it to be holed beneath the waterline.
Even the lunar calendar seemed to be conspiring against AT1. As if to emphasize the importance of Asian buyers, Chinese New Year in 2016 landed slap bang on February 8, the day when Deutsche was assuring the market that it had the headroom to service its AT1 debt and the day when that same paper cratered. And there was the full Chinese Golden Week holiday to follow.
“When you see events like that taking place, it’s like trying to catch a falling knife,” says one investor. “If contagion hits an entire sector, you have to sell what you can sell. You have funds that have to sell vertical slices through their portfolio – it all adds pressure.”
At the end of February, a second statement on MDAs – this time from the European Central Bank – finally started to settle market nerves. It clarified that the capital threshold for MDA would be on the basis of CET1 rather than total capital. A further easing came in July, when the EBA said that stress test-related parts of Pillar 2 – known as Pillar 2 guidance, or P2G – would not fall within MDA calculations.
The crash had left the asset class looking cheap and investors began to buy again. Some had jumped in at the lows. Davide Serra, owner of Algebris, was a big buyer of Deutsche’s AT1s in the teeth of the panic, confident that the market had over-reacted. With the bonds now back above par, he has been proved right.
Deutsche announced a tender on some of its senior debt, helping to restore some measure of confidence. For Deutsche the relief didn’t last long, as continued worries over profitability and the emergence of a possible huge fine from the US Department of Justice hit it badly in September, briefly taking its AT1 bonds close to the February lows again.
But the broader market felt different.
“It was more of a blip than February,” says one trader. “Yes people were nervous about Deutsche, but it was because of the worries over the possible fine and the CEO saying the firm wasn’t going to raise equity when the market thought he should.”
The sell-off was more discriminating, with a lot less forced dumping of positions.
“It was more about taking views,” says Knepper. “It was certainly easier to get hold of Deutsche than other names, but it wasn’t nearly as panicky as it had been in February.”
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Had the extreme market reactions that affected Deutsche and the broader sector in February 2016, and then primarily Deutsche in September, been justified?
“Frankly, to us it seemed exaggerated,” says Krim at Morgan Stanley. “What people were concerned about was the risk of not being paid their coupon. But if you factored that into the cash price, it meant that they were expecting to lose perhaps three or four coupons. It seemed unrealistic.”
So why had the MDA issue got investors so rattled and why particularly with Deutsche Bank? The answer was that it wasn’t just MDA, it was also ADI, or available distributable items. This is a measure of a company’s distributable reserves, but the key point is that it is subject to the whims of national legislation and national accounting principles.
Analysts had warned of the difficulties related to this for years – BAML published a note at around the time Deutsche issued its AT1 bond in 2014 warning that there was little disclosure around ADI. German GAAP constituted a ‘known unknown’ for many investors – and they were the informed ones. For others it was still an ‘unknown unknown’, something they didn’t even know they didn’t know.
It mattered because ADI was determined at the level of the issuing entity, not the consolidated group. It was possible to move reserves from another part of a group to the part subject to the test, but that was either not understood or did not lessen the concerns much anyway.
That might have been because there were continued worries about Deutsche’s profitability. It was the investment bank that still had not restructured. Its culture looked bad – hefty fines made it look worse. There were fears that changes to Basel regulations might inflate the firm’s risk-weighted assets by 10s of percentage points. And then came the news of Deutsche’s involvement in Russian mirror trades.
“It was the cherry on the cake,” says one investor.
Deutsche and other banks now routinely disclose their ADI.
“You could say that Deutsche Bank has helped to educate investors about that – albeit at its own expense,” says one bank capital expert.
Krim says that one key take-away from the Deutsche situation is the demonstration of the negative feedback loop that can quickly blow up in AT1.
Concerns in the debt market could quickly spill over into the equity side, risking a self-fulfilling situation where a lack of ability to recapitalize in turn raises creditors’ fears, which in turn makes equity investors even more jittery. And so on.
Some bankers think that the market might have coped with a failure by Deutsche to make a coupon payment.
“If Deutsche had not paid, there would have been disruption, but, to the extent that these instruments were doing what they were meant to be doing, the market would have had to get over it eventually,” says Sandeep Agarwal, chairman of the debt capital solutions group at Credit Suisse and someone who knows about as much as there is to know about bank capital.
Deutsche did not have liquidity problems, but it did have to show access to the debt markets and demonstrate to the equity investors it would surely be calling upon that it could maintain the trust of creditors. In the end it managed to do that – a year later it was able to raise €8 billion through a rights issue.
“The panic was the moment when it crystallized for a lot of people that these securities were a lot more risky than the market had thought,” says another FIG banker. “You started out with 9% coupons but then that had come down a lot, supported by the chase for any yield. The Deutsche situation brought to everyone’s mind that the asset class was not what we thought it was.”
For Kirk at TwentyFour Asset Management, what happened in 2016 is a reminder of the discipline he argues was always needed with AT1s.
“From the very first time they were issued, you had to look at them on a highly selective basis, because each credit and each structure was so individual,” he says.
As if any further reminder of that were needed, along came Banco Popular. Its failure and placement into resolution in June 2017 saw AT1 holders wiped out alongside tier-2.
Ironically, the treatment of AT1s in that situation appeared to give investors confidence. It was the regulator’s judgement that the bank had failed that saw Popular’s AT1s written down, rather than the institution hitting any “going concern” trigger.
As one FIG banker concludes: “Is AT1 the product that will recapitalize a bank and give going concern capital? My view is no. If you see it not being triggered in a stressed situation like Popular, then it’s more like a gone concern instrument.”
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Whether or not it is seen as fit for its original purpose, it is hard to imagine doing without AT1 now. “It has played such a fundamental role in regulatory capital stacks that it is hard to imagine it would disappear,” says another banker, “But we might see levels go back closer to how the original deals were issued – closer to the equity cost of capital.”
That is not happening yet. As the BAML CoCo Index shows, the sector rallied very strongly into the start of 2018, with overall yields falling to below 4.5%. It has sold off a little since then but remains tight. Some primary issuance has come at eye-popping levels: Nordea’s debut in November 2017 came with a coupon of just 3.5% – a record low.
Those levels don’t square with AT1 being a hybrid security, but there are other signs too. Spreads have tightened between sub senior and AT1 this year, which CreditSights notes is the opposite of what should be expected given that AT1 is a higher beta asset class. Investors are also giving issuers more flexibility on call dates.
Assuming no regulatory changes transform the asset class, the AT1 primary market is approaching its peak size, with perhaps another €25 billion to €30 billion of net new issuance to come, bankers estimate.
The new story in bank capital is the senior non-preferred that can fit into banks’ MREL (minimum requirement for own funds and eligible liabilities) buckets. From now on AT1 will be mostly a refinancing play. Some €18 billion-equivalent of European bank-issued AT1 debt is callable in 2018 and 2019, according to CreditSights.
BBVA got out early with a $1 billion issue in November 2017 to redeem its original $1.5 billion deal that became callable in May 2018. In April, KBC began refinancing a year ahead of time, with a €1 billion issue of non-call 7.5s. It has a €1.4 billion 5.625% bond that is callable in March 2019; it priced its new deal at 4.25%.
Any new issuance that does come will increasingly be in sub-benchmark size – and with the market still tight, it is these deals that will offer yield. Bawag, Deutsche Pfandbriefbank and Ibercaja Banco have all brought deals of below €500 million, with Ibercaja’s coupon of 7% making it the highest yielding AT1 so far in euros.
What remains to be seen is whether or not trigger levels will have to be changed. In a report published in March 2018, Germany’s Bundesbank repeated market worries over the effectiveness of going-concern triggers, given that a bank breaching the famous 5.125% CET1 ratio is increasingly likely to be viewed by regulators as a gone concern.
Ultimately, the calamity that overtook AT1 in February 2016 showed how a specific bank’s problems could highlight a broader knowledge gap among investors. It wasn’t that the market had grown too quickly, it’s that it had ended up not always pulling in the right kind of buyers.
“The market attracted some investors who did not have the experience to understand the product,” says Donlon at UBS.
Things have changed now, say the optimists. The Banco Popular situation showed how investors had learned to discriminate, while an evolution of the investor base had made the market a little more able to absorb bouts of selling. Even the jitters seen in credit markets after the formation of a new populist government in Italy have not particularly hit AT1 – yet.
The 2016 crisis shook many of the most flighty or unsuitable investors out, bankers say, and has left the buy side more stable as a result. The refinancing wave ought to be digestible.
That said, the asset class remains driven by one-way action. If a sudden change in sentiment comes – perhaps prompted by regulatory action – it could be vulnerable.
“It’s still basically everyone buying or everyone selling,” says one analyst. “It shouldn’t still be like that.”
