Fitch: Focus on High Yield ETFs and Basel III in Inaugural Edition of 'Inside Credit'

Fitch Ratings today launched the inaugural edition of Inside Credit, a weekly snapshot of its noteworthy content, selected from all sectors and regions. The first edition includes top stories on high yield bond exchange-traded fund (ETF) trading and the impact of Basel III on Europe's 16 largest banks.

Bond ETF trading patterns shifted materially during five market stress periods over the last 21 months as investors' focused on liquidity and price discovery during high-volatility periods.

'Growth in trading volume during these periods was driven primarily by high yield ETFs,' says Robert Grossman, Managing Director of Macro Credit Research. 'With high yield ETFs consistently topping their investment-grade counterparts in terms of average daily trading volume, investors are using them as vehicles to express changing views on the high yield market.'

Separately, while the 16 Europe-based global systemically important banks (G-SIBs) in Fitch's portfolio have largely met Basel III capital requirements ahead of schedule, they are still somewhat constrained by uncertainty over the final net stable funding ratio rules, combined capital buffer requirements and the EU-wide stress test.

'Overall, credit reductions and reallocations at Europe's biggest banks are slowing,' says Cynthia Chan, Senior Director. 'Decreased exposures to corporate, financial institution, securitization and other retail weren't fully offset by increased exposures to sovereigns and residential mortgages, indicating that Basel III is influencing banks' capital management, exposure allocation, and credit strategies.'

Inside Credit will be delivered every Friday at 8am EDT.

Other topics covered in this week's newsletter include:

--The ECB's Asset-Backed Security Purchase Program;

--The new resolution-stay protocol adopted by 18 global banks comprising the world's largest derivative (swap) dealers;

--Divergent prospects for Spanish and Italian mid-sized banks;

--European investors unsettled by geopolitics and recession fears;

--Portugal's 2015 Fiscal Target Vulnerable to Weaker Growth;

--The challenges after Brazil's election.

--Low Initial Jobless Claims Support U.S. Credit Card ABS

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http://pages.fitchemail.fitchratings.com/InsideCreditOptin

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