Aurelia Butler

Stay informed with free updatesSimply sign up to the More

The London-based hedge fund said the investment, from the Abu Dhabi Investment Authority’s unit, was for the ninth round of the Cheyne Real Estate Credit Holdings (CRECH) programme, also known as its Capital Solutions strategy, bringing ADIA’s total commitment to 650 million pounds ($831.3 million). The statement did not specify the size of the investment.The Capital Solutions strategy is focused on senior lending against European real estate and includes subordinated debt, hybrid credit and commercial mortgage-backed securities (CMBS) services.Cheyne has been an active lender in the residential real estate market, investing in student accommodation, affordable and senior housing projects.A rise in global interest rates have hit commercial real estate valuations, creating a financing shortage for borrowers with maturing loans, as lenders require more capital to be injected before approving renewals of debt facilities.The higher margins from these opportunities and have attracted money from Gulf sovereign investors. ADIA, which manages the surpluses the Gulf emirate earns from oil exports, is the largest among the three sovereign wealth funds in Abu Dhabi besides Mubadala and ADQ.It said last year its private equity division would position for growth in private markets including in private credit, while Mubadala last month struck a $1 billion deal with Goldman Sachs to go after private credit deals in Asia.On Tuesday, the U.S. bank’s unit Goldman Sachs Asset Management flagged it aims to expand its private credit portfolio to $300 billion in five years from the current $130 billion.($1 = 0.7819 pounds) More

This article is an on-site version of our Chris Giles on Central Banks newsletter. Sign up here to get the newsletter sent straight to your inbox every TuesdayAhead of the latest US consumer price data, it has been yo-yo time at the world’s two leading central banks. After spending most of February and early March telling markets it was too early to talk about interest rate cuts, the message reversed in the past week. European Central Bank president Christine Lagarde suggested that a eurozone interest rate cut would come in June. Not to be outdone, Federal Reserve chair Jay Powell also indicated the Fed was “not far” from having the confidence to cut rates. Again, June is the most likely month. If these views firm, it will be the ECB that will be first to act (its decision comes on June 6 compared with June 12 for the Fed). This raises the question of whether rate cuts and quantitative tightening can be happy bedfellows. Let’s take stock of what we know about QT. What do you think? Email me: [email protected] global primer on the future of QTCentral bankers love acronyms. And when it comes to talking about buying and selling assets, they are really smitten. Apart from quantitative easing and tightening, people have to get their heads around the APF, the PEPP, the APP, IORB, ON RRP and the SRF — and that is just a subset of terms flung around by the Bank of England, European Central Bank and the Federal Reserve. I’m going to lay out as simply and briefly as possible the progress made so far and the challenges to come across the world. Remember, QT is the process of carefully selling assets that central banks hold back to the private sector and then destroying the money they receive in return. It is the reverse of QE and has been going rather well so far. Why is there active and passive QT? All central banks selling assets engage in passive QT. That means that they receive money when the bonds they hold mature, they do not buy new assets with the money and instead destroy it. Some central banks, such as the Fed and ECB, put a limit on the amount of passive QT they undertake each month, so they do use some of the money they receive to purchase new assets. These limits ensure an orderly pace for QT. Three countries have also engaged in active QT where they sell assets back to private investors before they mature. Sweden and New Zealand do this primarily because their countries’ have very little public debt, so the sums involved are objectively small. The UK has also started active QT because its public debt is much longer-dated than most other countries. If the BoE waited for assets to mature, it would be hanging around a very long time. There is nothing more complicated than that in explaining the QT choices internationally, as the chart on countries’ debt profiles below shows. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.What progress is QT making globally?A lot has been achieved, but much more is still to come. As I described last week, QT appears to be progressing as well as central banks could hope. Sweden, New Zealand and Canada have made the most progress in reversing the pandemic-related QE. Rather less progress has been made elsewhere, especially in the mega economies of the US and eurozone. If current run-off rates are continued, the smaller economies will largely reverse QE, but half of the assets bought globally during the pandemic will still be held by central banks at the end of 2025. We need, therefore, to be cautious in overpraising QT. It has a long way to go. The simulations shown in the chart below are from the paper by Du, Forbes and Luzzetti. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Where is QT already slowing?Canada has announced it is likely to stop QT later this year because the stock of assets will be down to 1 to 2 per cent of gross domestic product. The US is beginning also to make noises about a wind down in the speed of passive QT run-off. Lorie Logan, head of the Dallas Fed, has talked about “slowing” but not stopping QT relatively soon in the US, so the central bank can feel its way to the right level of assets in a world where commercial banks want more liquid assets than in the past. Christopher Waller, a governor of the Fed, pointed out earlier this month that the US central bank had already said it would “discuss slowing our redemptions at our FOMC meeting this month”. That means next week. He stressed that the question would be what is the right size of the Fed’s balance sheet to make the financial system work rather than what pace of QT chimes with its interest rate policy.Outside the US and Canada, there have been no moves elsewhere to slow the pace of QT so far. How far can QT go? This is the big and difficult question. To ensure they can meet customer needs for funds, commercial banks will want to hold more liquid assets than before the global financial crisis, but no one knows for sure how much. When the Fed was undertaking QT between 2017 and 2019, it ran into trouble with market short-term interest rates spiking well above the Fed’s target range, indicating it was not supplying enough liquidity to meet the banking system’s needs.Central bankers are therefore watching money markets carefully for similar spikes (which suggest that banks are short of overnight funds and are willing to pay significantly more than the official rate to get them). Of course, not all banks will hit that constraint at the same time, so both the Fed and BoE have put in place new facilities so that banks can swap other high quality assets such as government bonds for central bank money. They hope that this will alert them about stresses emerging in the financial system. By far the best explanation of these new tools came in a speech last year by the Reserve Bank of Australia’s Andrew Hauser (who was then at the BoE). The following chart explains both the BoE and Fed’s current thinking. This applies even though the two central banks do not have exactly the same sort of floor system for setting interest rates.At the ECB, thinking has not progressed in the same way, partly because it has sold fewer assets, partly because it uses different mechanisms to set interest rates and partly because it is reviewing that system. Isabel Schnabel, a member of the executive board of the ECB, said in December that she wanted commercial bank demand for central bank money primarily to drive the size of the central bank’s balance sheet and saw no problem with this being potentially different from the Fed’s system of setting short-term interest rates. It will set out its policy on Wednesday. What else should I be looking out for?Remember the Fed’s “operation twist” in 2011? No one can blame you for forgetting. That was when officials bought long-dated Treasuries in place of short-dated ones it already held, in a bid to lower long-term interest rates. Well, this might well go into reverse. The Fed’s Waller made it clear this month he was not keen on the Fed owning so many longer-dated assets and if it swapped them for short-dated ones, it would “allow our income and expenses to rise and fall together as the FOMC increases and cuts the target range”. Let no one say that officials do not care about central bank profits and losses.In the same speech, Waller also suggested the Fed should gradually sell all of its mortgage-backed securities. That would move it closer to the position of other central banks. What about Japan?In the land of the rising sun, no one is talking about QT yet. The Bank of Japan has been buying assets at a quite remarkable pace since 2001. In the latest guise of yield curve control, the pace of asset purchases has slowed significantly, but government bonds are still being bought and the central bank owns more than half of the government securities issued — as the chart below shows. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.What I’ve been reading and watchingA chart that mattersThe FT has updated its global inflation tracker, a real feast for data hounds. If you want to know a country’s inflation rate or interest rate or the components of its inflation, this is the place to go. In the chart below, you can see that the period of rate rises appears to be over, globally, and we are now beginning a period of rate cuts. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Recommended newsletters for you Free lunch — Your guide to the global economic policy debate. Sign up hereTrade Secrets — A must-read on the changing face of international trade and globalisation. Sign up here More

NEW YORK (Reuters) – The U.S. dollar was little changed in choppy trading on Tuesday, after moving higher earlier in the global session, amid data showing hotter-than-expected inflation last month for the world’s largest economy.The greenback initially jumped after the data, but later fell. The dollar index was last flat at 102.83.The Labor Department report showed that the Consumer Price Index (CPI) rose 0.4% in February, in line with the forecast for a 0.4% increase. On a year-on-year basis, the CPI gained 3.2%, compared with the estimated 3.1% rise. (This story has been refiled to change the day in the lead to Tuesday from Thursday) More

There won’t be “overall big relief” to the challenges facing commercial real estate in 2024, CEO Christian Sewing said at a financial conference.Deutsche Bank is Germany’s largest lender and also has the most in outstanding loans to the commercial real-state sector among its domestic competitors, data show. In the United States, where Deutsche Bank is also active, commercial property has been under particular pressure due to high interest rates and office vacancies.”There is no deterioration but there is also not … signs of improvements,” Sewing said of the sector.He said that the bank was working on early extensions and restructurings with borrowers.Deutsche Bank has forecast that provisions for credit losses in 2024 would be 25 to 30 basis points of loans.Sewing on Tuesday narrowed the forecast, saying provisions would likely land at the “higher side” of the range “given where the world is”. More

The following explains key aspects of the review and previews some of the likely decisions. WHAT IS THE OPERATIONAL FRAMEWORK AND WHY CHANGE IT? The ECB’s operational framework is the backbone of the financial system because it sets out how the central bank steers short-term money market rates and thus transmits its monetary policy to banks and ultimately the broader economy. The ECB has been pushing cash into the system for over a decade with the aim this money will find its way into the real economy of the euro zone to generate growth and inflation. This abundance of liquidity, a remnant of the bloc’s debt crisis and a period of anaemic inflation the ECB tackled by taking interest rates negative, is incompatible with the current economic reality of rapid price growth and high interest rates.The ECB’s biggest problem is that this cash – there is 3.5 trillion euros of excess liquidity sloshing around the system – is costing billions of euros because lenders deposit the funds back at the ECB overnight, at an interest rate of 4%. The other issue is that banks now rely predominantly on the ECB for liquidity, which has effectively killed the interbank market. Some policymakers now want to revive interbank lending, with the central bank to act as a back up. HOW DOES THE ECB CURRENTLY OPERATE?The ECB has provided cash over the past decade mostly via three channels.It printed trillions of euros and used them to purchase government and corporate bonds from the market, a policy known as quantitative easing (QE). Most of these remain on its books and yield much less than the 4% it has to pay out on deposits.It also gave banks multi-year loans via so-called Targeted Longer-Term Refinancing Operations or TLTROs, though these have been discontinued and most funds were repaid early.The ECB also provides cash via regular tenders, including the weekly main refinancing operation, a facility that has seen little demand in recent years. WHAT IS LIKELY TO CHANGE? The ECB is expected to adopt a “demand-driven floor” system under which banks will have to tell the ECB how much they want to borrow instead of having funds thrown at them by the central bank via bond purchases.This change to a demand-driven system will reduce the amount of liquidity the central bank must maintain and encourage banks to return to lending to each other. The central bank will still effectively set the market “floor” – the lowest rate at which banks would lend to each other – via the rate it pays on bank deposits, currently 4%.This will remain the prevailing rate for money markets while the interest rate banks must pay to borrow funds from the ECB at auction – currently 4.5% – will be the source of marginal funding for banks. To avoid the big gap between the two rates lifting market rates from the “floor”, the ECB is likely to narrow the disparity, probably by lowering the main refinancing rate.This rate adjustment is likely to come once the ECB starts cutting borrowing costs from record highs in the coming months. The ECB is also likely to say that some of the liquidity it provides will be done via a “structural portfolio” of bonds and longer-term loans. This means that at some point the bank would stop letting bonds it bought under QE expire and could restart some purchases to maintain a certain level of cash in the system. It is unlikely to specify the optimal size of its balance sheet, however, and will instead keep its guidance vague. One change some policymakers lobbied for, an increase in minimum reserves for commercial banks, is unlikely to happen. Banks are required to keep some of their cash at the ECB at a zero percent rate and some, particularly Germany’s central bank, had wanted to increase this ratio so that more bank deposits go unremunerated, lowering its own interest bill. HOW QUICKLY WILL THE ECB ADJUST TO A NEW FRAMEWORK?Not much in the near term: whatever the ECB decides will take years to implement in full. Bonds purchased during a decade of crises will expire over years, meaning excess liquidity will shrink only slowly. The banking sector as a whole will have more reserves than it needs until 2029, according to the ECB’s own estimates.The ECB could speed up the process by selling the bonds but this would generate huge losses, and with their equity already shrinking quickly, there is no appetite for that among policymakers. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.UK mortgages in arrears hit a seven-year high in the final quarter of 2023, according to official data that underlines the impact of high borrowing costs on households. The proportion of total loan balances with arrears, relative to outstanding mortgage balances, rose to 1.23 per cent in the three months to December 31 from 1.12 per cent in the third quarter, the Bank of England said on Tuesday.The figures marked a reversal of a long-term decline in overdue payments and the highest share since the final quarter of 2016, when it stood at 1.24 per cent. The trend in rising home loan arrears follows a sharp increase in mortgage costs over the past three years, as the BoE lifted interest rates to a 16-year high of 5.25 per cent in a bid to tame inflation. Nevertheless, the share of mortgages in arrears remains well below a peak of 3.64 per cent in the first quarter of 2009 during the global financial crisis. Karen Noye, mortgage expert at wealth management company Quilter, said: “The large increase in mortgage rates seen over the last couple of years is really starting to bite for some borrowers and this is unfortunately causing them to fall into arrears as they simply can’t afford to keep up with their increased payments.”Financial markets expect the BoE to start cutting interest rates from this summer, taking the benchmark rate to 4.5 per cent by the end of the year. The re-pricing of interest rate expectations has caused lenders to offer cheaper deals, but households continue to face higher mortgage payments as their fixed contracts expire. The average two-year mortgage with 60 per cent loan to value was 4.62 per cent in February, according to the central bank. That is below a peak of 6.22 per cent last July but well above the 1.29 per cent average in 2020 and 2021, when interest rates stood at 0.1 per cent. Simon Gammon, managing partner at broker Knight Frank Finance, said: “At 1.23 per cent, the proportion of loan balances in arrears is still very low, but the pace at which it is rising will be a source of concern for policymakers.”Home loan arrears are lower than during the 2008-09 financial crisis in part because of a resilient labour market and improved mortgage regulations.In research published last month, the BoE said “the vast majority of borrowers” who came to the end of fixed deals in 2023 were offered rates below those they had been tested by when agreeing terms. The BoE data on Tuesday also showed that the share of gross mortgage advances for buy-to-let purposes fell by 4.9 percentage points year-on-year in the final quarter to 7 per cent, the lowest since 2010. Noye said landlords had been “hit with numerous changes to the buy-to-let tax landscape in recent years, making it a less attractive option”, and that “the changes to the holiday let rules at the Budget may also make things even worse”. More