22/07/2024
Market update
- The new Planning and Infrastructure Bill, announced on Wednesday, aims to simplify the planning consent process and significant changes to the National Planning Policy Framework are expected later this month. Changes will take time to implement, and there will continue to be planning and supply bottlenecks, but the ambition and drive for new housing supply is likely to have an impact on Housing Association balance sheets later this decade.
- Real wage growth is 3.7%, and service inflation remains at 5.7%, indicating resilience in the UK economy. Both metrics will need to fall for interest rate cuts to begin. We haven’t seen material real wage growth sustained for more than a year since the early 2000s.
- The 5-year swap rate has decoupled marginally and is no longer above the 20-year rate. This is the first sign of the yield curve inversion reversing.
- The key messages on swaps are a flat curve across tenors with a c. 10 bps range between 5 and 20 years, and low volatility with a change in economic data required to see a meaningful fall in rates.
- Movements in 3-month SONIA projections have tempered recently, compared to earlier in 2024, a sign of increasing stability. One rate cut is expected in 2024, and three by summer 2025.
Implications for clients
- Unless the economy shows signs of weakness and real wage growth falls back materially, it is difficult to visualise a meaningfully lower swap curve. The current 10-year swap rate of c. 3.8% is an attractive entry point at the lower end of the 2024 range, with limited signs of a fundamental shift.
- With the 30-year gilt rate at c. 4.5% and spreads almost at record lows, longer dated and covenant light DCM notes offer good value. Investor demand is driving availability and value of innovative solutions such as variable to fix or shelf facilities.
- The general sense of stability combined with tight margins and spreads makes now a good time to lock in capital.
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 led the successful restructuring of Jigsaw’s portfolio by removing MRI, including from a Private Placement. This initiative increased liquidity and significantly eased financial support and merger controls.
Portfolio Restructure: We secured £175m in new facilities and restructured £195m of existing ones for Cottsway. This comprehensive refinancing, which included a £75m new private placement, resulted in substantial interest savings, harmonized covenants, and reduced treasury risks.
Portfolio Restructure: Centrus guided Hafod Housing through a £90m portfolio restructure and secured £70m in new funding. We identified the optimal funding solution and executed the strategy, ensuring efficient financial management and stability for Hafod Housing.
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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