Market update
- The September CPI of 1.7% is disappointing for rent growth, however lower interest rate projections will help the significant sector re-financing requirement over the coming years. The 10-year swap was 4.3% a year ago, and now sits at 3.7%.
- The sharp month-on-month fall in service inflation to 4.9% from 5.6%, along with signs of weakening wage growth is significant. The Bank of England may revise down its inflation projections again, and the market expects successive monthly rate cuts in November and December, with further falls projected.
- Swap rates and gilt yields rose through September from a recent low early in the month, with the 10-year swap rising from 3.4% to over 3.8%. Following the lower-than-expected inflation reading, it fell back to 3.7% and may continue to retrace.
- We wait in anticipation for the Autumn Statement on 30th October. It will be interesting to see if the OBR revises projections, and how gilt yields react to the Chancellor’s announcement.
Implications for clients
- The 1.7% CPI release was below our business planning assumption of 2.2% and below the Bank of England CPI projection.
- With the potential for another market moving Autumn Statement and two remaining MPC meetings for 2024, we may see increased volatility as we run into Christmas. We’ll be into risk buffer discussions and business planning season before we know it.
- Hedging interest rate risk and having more certainty on cost of capital for decision making can avoid the need for excessive risk buffers in discount rates and interest budgets.
- There will be more to get our teeth into next month, until then, we hope for no further escalation in global instability.
Recent client activity
At Centrus, we are actively engaged in supporting our clients with strategic financial initiatives, from loan restructuring to exploring innovative financing solutions. Recent activities include:
Southern Housing EMTN Programme and Sustainability Finance Framework:
Newbridge Advisors recently advised Southern Housing to help successfully complete its first issuance from a £1bn European Medium-Term Note (EMTN) programme and Sustainability Finance Framework. The £250m issuance in September saw significant demand from investors, reflecting the growing appetite for sustainable investment opportunities in the housing sector. This issuance marks an important step in aligning housing finance with broader sustainability goals.
Loan Portfolio Restructuring:
Restructuring loan portfolios has become a key focus for many of our clients, particularly in light of the current interest rate and banking market environment. Centrus has been working closely with several clients to renegotiate loan terms and improve pricing, providing opportunities to optimise their financial positions and reduce costs, ensuring more robust long-term financial stability.
To learn more about our work in the affordable housing sector, click here.
For more information, please contact Paul Stevens or John Tattersall.
Correction: This article has been updated to state that Newbridge Advisors advised Southern Housing on their debut issuance under their EMTN, rather than Centrus as incorrectly referenced in previous version.