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Cocos in 2021

Attractive real yields in a QE world.

The coronavirus pandemic triggered global monetary policy easing of USD7.5 trillion in 2020 and fiscal support of USD12 trillion. To put this into context, aggregate assets at G10 central banks increased by double the amount seen during the two years of the global financial crisis in just six months during 2020.

We view the response as both necessary and effective, but where does it leave us when considering its implications for 2021 and the case for investing in bank capital?

G10 central bank assets (trillions USD)

G10 central bank assets (trillions USD) chart

Sources: Bloomberg Finance L.P., respective central bank and ECB calculations.


In our 2021 cocos outlook, we explore:

  • Macroeconomic environment for banks
  • Valuations
  • Fundamentals – including balance sheet strength and non-performing loans
  • Regulatory & policy developments
  • M&A – momentum around sector consolidation in 2021
  • ESG – banks are the primary policymaker instrument for influencing the transition to a more sustainable world
  • Risks that could challenge our core views this year
  • How we will invest in 2021

Download our ‘Cocos in 2021’ white paper PDF for a deep-dive into these topics.

For a quick read on the investment landscape and how we’re positioning to invest in 2020, click here.

“AT1 is in a sweet spot as we believe coupon risk remains fundamentally mispriced. If one considers the scale of this global pandemic, where we witnessed unprecedented economic shocks with no write-down or coupon restrictions in AT1, the 258bps differential looks glaringly mispriced and should dissipate, thereby rewarding AT1 bondholders.” Marc Stacey


Yield dynamics since 2016: AT1 is the only asset class offering a positive real return

Yield dynamics since 2016 chart

Source: Goldman Sachs, 27 November 2020

“Not only does AT1 represent one of the few asset classes which still has a pre-pandemic premium c.100bps since February 2020 levels. But in a world of rising inflation and trillions of dollars in negative-yielding debt, it is one of the few asset classes where investors can still achieve positive real yields while most of the issuers are investment-grade rated.” James Macdonald