Capture yield via high-quality US dollar bank bonds
One corner of the market that continues to attract attention is US dollar-denominated bonds issued by globally systemic banks such as HSBC, Barclays, Standard Chartered, Macquarie and BNP Paribas.
These issuers offer a compelling blend of income and resilience amid a complex macroeconomic landscape.
H1 2025: divergent performances, common strength
The first half of 2025 highlighted the varying strategies banks are adopting to navigate persistent inflation, rising geopolitical tensions and the initial fallout from global tariffs. While Barclays capitalised on market volatility with stronger trading income, others such as HSBC and BNP Paribas remained more defensive amid credit deterioration and one-off divestments.
Still, the overall sector remained fundamentally sound. Most banks saw improvements in income, albeit accompanied by modest increases in credit provisions. Net profits across these major players held steady, underpinned by solid balance sheets and robust capital buffers.
Capital and liquidity strength
A key source of confidence for investors lies in the banks' strong capitalisation and liquidity profiles. As at Q1 2025, average Common Equity Tier 1 (CET1) ratios remain well above regulatory requirements, with buffers ranging from 170 to 380 basis points.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
Liquidity coverage ratios (LCR) also exceeded 130 per cent for all five banks – a reassuring sign of balance sheet resilience coupled with net stable funding ratios (NSFR) above regulatory minimum of 100 per cent. These position the banks with a solid footing to weather further macroeconomic headwinds while continuing to support bondholders.
Highlights of major banks
Barclays delivered robust results, with income buoyed by fixed income trading and a healthy rise in net interest income. Return on tangible equity exceeded both internal and long-term targets; and capital and liquidity remained comfortably above regulatory thresholds.
BNP Paribas saw stable underlying momentum despite a year-on-year decline in reported profits due to the absence of one-off gains in Q1 2024. Liquidity and capital positions remain healthy, with CET1 at 12.3 per cent and LCR above 130 per cent.
Standard Chartered posted a solid Q1 2025, with income growth driven by Hong Kong and improving operating profit. Despite higher overlays for China and Hong Kong commercial real estate exposures, the bank maintained strong CET1 and liquidity metrics.
HSBC experienced a decline in headline earnings following the absence of prior-year one-offs and higher expected credit losses, especially in commercial real estate. Excluding these, earnings remained steady, and the bank reaffirmed its commitment to return capital via buybacks.
Macquarie Bank saw moderate growth in FY25 despite headwinds from lower trading income and rising credit charges. Net profit rose 18 per cent year on year, with strong CET1 ratios and liquidity providing ample buffer.
Quality amid uncertainty
In today's environment, we believe high-quality USD bank bonds remain a reliable income-generating asset class where income and quality are both in focus. Bonds from these financial giants present attractive opportunities across a range of risk and duration profiles.
• Senior bonds from names such as BACR 7.385% 02Nov2028 Corp (USD), HSBC 7.390% 03Nov2028 Corp (USD) and STANLN 6.301% 09Jan2029 Corp (USD) offer investors relatively lower-risk exposure with yields above 5 to 7 per cent and tenors within the three to six-year range. These are ideal for investors seeking stability and visibility on returns.
• Subordinated Tier 2 bonds such as MQGAU 6.798% 18Jan2033 Corp (USD) and STANLN 4.300% 19Feb2027 Corp (USD) provide an appealing middle ground. They come with higher yields but also modestly higher risk due to regulatory loss absorption features. However, Basel III rules that reduce capital recognition post-call date offer a strong incentive for issuers to redeem on schedule, increasing predictability for investors.
By combining senior and subordinated exposures from these issuers, investors can construct a diversified bond portfolio that balances income, duration and credit quality.
The writer is a research analyst with the research and portfolio management team of FSMOne.com, a Singapore subsidiary of iFast Corporation
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Times
11 hours ago
- Business Times
UBS joins exodus from climate banking alliance
[LONDON] Swiss lender UBS will leave the Net-Zero Banking Alliance (NZBA), following the departure of major British banks Barclays and HSBC, as part of an annual review of its sustainability and climate-related memberships. The departure raises questions about the future of NZBA, an initiative established in 2021 to help banks align with global climate goals, including funding environmentally friendly activities and setting emission reduction targets. UBS said that although the alliance had provided valuable frameworks for initial target-setting, the bank has advanced its own capabilities and decided to leave. Global peers including JPMorgan, Citi, Morgan Stanley, Macquarie and Bank of Montreal have all exited the group this year as the US increases its scrutiny of financial institutions deemed to be supporting pro-climate policies. The group was formed in 2021 to help align the sector with the world's goal of limiting global warming, including by mobilising more money for environmentally friendly activities and setting targets for members to reduce emissions linked to their business activities. Barclays said last week it had quit the group because the departure of several global lenders has left the NZBA no longer fit to support the bank's green transition. A NEWSLETTER FOR YOU Friday, 12.30 pm ESG Insights An exclusive weekly report on the latest environmental, social and governance issues. Sign Up Sign Up UBS said the group had played a valuable role in helping banks establish initial target-setting frameworks in the early days but had decided to leave now that the work had advanced, and the Swiss lender had bulked up its in-house capabilities. 'NZBA's strength lies in the commitment of its member banks to lead the net zero transition,' an NZBA spokesperson said. 'This long-term work requires courage, consistency and true leadership to stay on track, even when faced with barriers to action.' Earlier this year, NZBA ditched some of its more stringent membership rules in a bid to keep members. The group said the move was a reflection of the slow pace of change in the real economy and to help appeal to emerging market lenders. Last month, UBS announced it was replacing its head of sustainability Michael Baldinger, who was in the role of chief sustainability officer (CSO) until July 2025. Baldinger was replaced by Christian Leitz, who adds the CSO title to his current role as head of corporate responsibility and corporate historian. UBS Group's sustainability strategy and impact is overseen by Beatriz Martin Jimenez, who also sits on the bank's board which includes the bank's philanthropy work. REUTERS
Business Times
2 days ago
- Business Times
HSBC takes extra space in Canary Wharf due to HQ squeeze
[LONDON] HSBC has signed a lease to take extra space in Canary Wharf before shifting its global headquarters away from the East London financial district, according to a company memo seen by Reuters, owing to a shortage of space at its planned new base in the central City of London area. The banking giant has signed a contract to take a number of floors at 40 Bank Street, not far from the 45-floor skyscraper it currently occupies in Canary Wharf, the memo said. Canary Wharf Group, the district's landlord, later confirmed that HSBC had signed a 15-year lease for 210,000 square feet at the Bank Street building. The lender is moving its headquarters in London to a building roughly half the size near St Paul's Cathedral but had realised it would lack sufficient space and had been assessing other options, Reuters has reported. HSBC will move staff into the new Canary Wharf office from early 2027, the company said in its memo, adding that it would continue to operate from multiple sites across London to access clients across the city. Bloomberg previously reported that HSBC was in discussions about leasing the space at 40 Bank Street. HSBC's decision will provide a boost to Canary Wharf, where office values have declined since the Covid-19 pandemic and several planned departures including HSBC and law firm Clifford Chance. Several companies have signed up for space in the district in recent months as return-to-office mandates have contributed to a shortage of quality space, particularly in the central City of London. Spanish bank BBVA has signed a lease to take 250,000 sq ft in Canary Wharf, Canary Wharf Group said this week, while fintech company Zopa is moving its headquarters to the district. REUTERS
CNA
3 days ago
- CNA
Global stocks rise, dollar soft on Fed easing bets
LONDON :Global equities rose on Thursday, with Japanese shares hitting a record high, as tech-led gains on Wall Street, upbeat earnings, growing hopes for a ceasefire in Ukraine and expectations for U.S. rate cuts boosted sentiment. Markets largely shook off U.S. President Donald Trump's latest tariff volleys, including an additional 25 per cent tariff on U.S. imports from India over purchases of Russian oil and a threatened 100 per cent duty on chips. "It's surprising that everything that gets thrown at the market that it just continues to melt-up," said Eddie Kennedy, head of bespoke discretionary fund management at Marlborough. Europe's STOXX 600 rose 0.5 per cent, with major indexes in Frankfurt and Paris up 1 per cent and 0.8 per cent, respectively. Britain's FTSE 100 was the outlier, dropping 0.3 per cent. Plans for a meeting between U.S. President Donald Trump and Russian President Vladimir Putin over the war in Ukraine also helped sentiment in European equities and underpinned the euro. "It (a ceasefire) would be an extra positive," said Emmanuel Cau, Barclays head of European equity strategy. "If there is a de-escalation, it would clearly be supportive. It's not the key driver but it's definitely been a lingering issue for Europe." In Asia, Japan's broad Topix index rose 0.7 per cent to a record closing high, with the more tech-focused Nikkei also gaining by about the same. Taiwan's stock benchmark surged as much as 2.6 per cent to a more than one-year peak. Shares in chipmaker TSMC, which this year announced additional investment in its U.S. production facilities, soared 4.9 per cent to a record high. The KOSPI added 0.6 per cent, with South Korea's top trade envoy saying Samsung Electronics and SK Hynix would not be subject to 100 per cent tariffs. Hong Kong's Hang Seng rose 0.5 per cent, although mainland Chinese blue chips were only slightly higher on the day. The yuan firmed slightly to 7.1819 per dollar in offshore trading. U.S. S&P 500 futures rose 0.3 per cent. On Wednesday, the cash index climbed 0.7 per cent. "Wall Street seems to have gotten its mojo back," analyst Kyle Rodda wrote in a note. "However, there are persistent risks to the downside. Downside surprises in official data are increasing," he said. "Valuations are also stretched, with forward price to earnings hovering around the highest in four years. And trade uncertainty persists." DOLLAR ON BACK FOOT The U.S. dollar remained lower against major peers on Thursday, with expectations of easier policy from the Federal Reserve stoked both by some disappointing macroeconomic indicators - not least Friday's payrolls report - and Trump's move to install new picks on the Fed board that are likely to share the U.S. President's dovish views on monetary policy. Focus is centring on Trump's nomination to fill a coming vacancy on the Fed's Board of Governors and candidates for the next chair of the central bank, with current Chair Jerome Powell's tenure due to end in May. The benchmark 10-year U.S. Treasury yield was little changed at 4.2365 per cent. The two-year yield, which is more sensitive to changes in interest rate expectations, was up 1 basis point at 3.7134 per cent, close to a three-month low of 3.659 per cent touched on Monday. The dollar index, which gauges the currency against the euro, sterling and four other counterparts, eased 0.2 per cent to 98.031, extending a 0.6 per cent drop from Wednesday. The euro added 0.2 per cent to $1.1686, following the previous session's 0.7 per cent jump. Sterling rose 0.2 per cent to $1.3378. The BoE looks poised to cut interest rates for the fifth time in 12 months later on Thursday, but nagging worries about inflation are likely to split its policymakers and cloud the outlook for its next moves. Two Monetary Policy Committee members may push for a half-point rate cut, and two may lobby for no change.
