Monday Musings: February 22, 2022

Feb 22, 2022

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Public Trust Credit Team

Housing market red hot as appetite spiked to close out 2021

The S&P CoreLogic Case-Shiller National Home Price Index (a measure of the average home prices in major U.S. metropolitan areas) closed out 2021 up 18.8% in December, setting a record. The low mortgage interest rate environment encouraged many to search for a new home, but this caused stiff competition among buyers as the U.S saw a limited number of homes for sale. The housing market saw its climb start at the beginning of the pandemic as households took advantage of low interest rates and looked to upgrade their living situation as most were forced to work remotely. Phoenix took first place for the largest year-over-year pricing increase at 32.5% with Tampa Bay and Miami following closely with increases of 29% and 27% respectively. Finding it difficult to compete in a market riddled with cash buyers and investors, first-time homebuyers overall share of the market dropped to 27%, down from 33% the year prior. With housing demand remaining elevated while overall housing supply stays low, we expect this trend of housing prices to continue for the foreseeable future.

Volatility connected to Ukraine spooks global IG issuers

At least five U.S. investment-grade issuers and all but one European issuer delayed plans for debt sales this morning in connection with volatility stemming from the ongoing Ukraine-Russia tensions. Investors have rushed to safe-haven assets amid increasing tensions, introducing some substantial volatility to both equity & debt markets and making sales less attractive. The MOVE Index, which measures volatility in the debt markets, moved to levels not seen since the early pandemic, a sign that monetary policy questions and Russian headlines have begun to spook the market. While we feel that any issues from the Ukraine-Russia flare-up are likely to be immaterial for the credit quality of counterparties we invest in, it does appear that markets remain on edge, and we will likely see lower than expected debt issuance until the situation has passed.

SocGen’s Russian subsidiary may find the silver lining in Ukraine fiasco

Bloomberg News reported that Societe Generale (SocGen) is currently receiving entreaties from unnamed Wall Street banks to serve as a correspondent bank in Russia. While many banks have some involvement in the Russian economy (once considered one of the more appealing developing economies), SocGen is uniquely positioned due to its Rosbank subsidiary. Although it has not historically been a large contributor to SocGen’s financial performance, “Moscow-based Rosbank has 550 branches [and] more than 3.1 million customers” per Bloomberg. It is one of the largest Western banks alongside Italy’s UniCredit and Austria’s Raiffeisen. Should the U.S. and its European allies impose sanctions upon Russia, the ability to transact and potentially wind-down transactions will be invaluable to non-Russian investors and lenders.

All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information presented should not be used in making any investment decisions. This material is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

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