25/09/2024
Market update
- The Bank of England voted 8-1 to hold interest rates at 5%. Sterling strengthen following the decision, and at $1.34 today, is the highest dollar exchange rate since March 2022.
- CPI remains at 2.2% following the August 2024 release, in line with expectations, and the BoE expects CPI at 2.5% by the end of 2024, lower than the previously forecast 2.75%.
- The announcement on 11 September that July GDP growth was flat for a second month in a row led a fall in SONIA swap rates due to the implied economic weakness. The fall has retraced moderately in recent days.
- The 10-year swap rate at c. 3.5% is down 0.6% from a year ago, while the 30-year gilt has dropped 0.2% in that time to 4.5%.
Implications for clients
- The sector faces c. £10b of debt maturities in 2024/25 and 2025/26, in addition to c. £11b of new funding over that time. The rise in popularity of shorter tenor bank funding in recent years is driving an increase in debt maturities.
- With gilt yields rising relatively steeply from 10 years (3.9%) to 30 years (4.5%) and the 10-year swap trading at an attractive 3.5%, funding strategies require careful thought and execution. The banking market is currently a popular solution to capitalise on the lower swap curve.
- However, covenant light debt capital market (DCM) solutions will be required over the coming years due to the need for deeper liquidity pools to meet the higher quantum of funding. Shorter tenor DCM solutions are rising in popularity to avoid the current steep gilt yield increase at the longer end.
- The outlook for CPI has shifted moderately lower, helped by sterling strengthening which eases import costs. For business planning assumptions, September CPI for this year and beyond is not expected to deviate materially from the 2% long term target. Our latest guidance is 2.2% for September 2024 and 2.1% for September 2025.
- With SONIA expectations falling further, headroom in 2024 business plans has continued to improve.
Recent client activity
At Centrus, we are dedicated to providing strategic financial solutions and support to our clients. Our recent activities include:
Portfolio Restructure: Centrus arranged £70m of new funding for Hafod and advised a £90m portfolio restructure.
Market Update: If you missed our 2024 Affordable Housing Seminar last week, please join us at our Webinar for a summary of the event, more details on the timing of this to follow. We will run through topics including recent sector financial performance and activities such as mergers and stock disposals, the challenge of the existing funding model for some Housing Associations and the wider funding landscape.
To learn more about our work in the affordable housing sector, click here.
For more information, please contact Paul Stevens or John Tattersall.
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