Hybrid capital for Development Banks – an emerging asset class? Hybrid capital for Development Banks – an emerging asset class?

What does a 1990s hip-hop artist from Brooklyn, and an oil-rich South American country have in common? Surprisingly, a shared struggle. Jay-Z famously faced 99 problems, while Venezuela’s was one, much larger, issue: Nicolás Maduro
Their career paths were equally unconventional. Jay-Z transitioned from a high school dropout to a global hip-hop icon whilst Nicolás Maduro journeyed from a bus driver to the President of Venezuela. By comparison, it makes my not-so-meteoric rise from a university bartender to an investment specialist seem relatively spiritless.

In recent years, the transmission mechanism of monetary policy—the intricate process through which central bank actions impact the economy—has undergone significant changes, notably as global debt levels have surged. With governments around the world carrying heavier debt burdens, the impact of rising interest rates on the economy has shifted in ways that policymakers must grapple with.

Germany, long known for its robust economic engine, is experiencing a slowdown. While several factors contribute to this economic stagnation, the country’s strict adherence to its fiscal policy has been a key driver, notably the “debt brake”. The debt brake, enshrined in the German constitution in 2009, limits the amount of new borrowing the government can undertake, keeping fiscal spending under tight control.

It’s often said that the first cut is the deepest, and that may well be the case for the US Federal Reserve (Fed) delivering a blockbusting 50 basis point (bp) cut. After 918 days, this marks the end of the monetary policy tightening brought in to tame the “transitory” inflation that came to a thunderous crescendo in 2022.

News on Tuesday 27th August took the music industry by storm: Oasis are doing a reunion tour. I’m happy (if not a little bit nervous in social circles) to admit, I am not the most avid of Oasis fans. Sure, everybody loves “Wonderwall”, and “Don’t Look Back in Anger”, and “Champagne Supernova”, and… you see, that’s all I can come up with. But, despite my love for this genre being committed to a different band from the UK – clue in the ‘heroes’ section of…

Central banks have traditionally relied on interest rates as a primary tool to influence economic activity, raising rates to cool down an overheating economy, and cutting rates to stimulate growth. Historically, these mechanisms have worked fairly well; however, the recent cycle has proven to be different. Despite a series of aggressive rate hikes, the expected economic slowdown has been surprisingly muted, suggesting that economies are now less sensitive to interest rates.

Taylor Swift’s record-breaking Eras Tour has become a global economic juggernaut, redefining the economic impact of entertainment on an international scale. As she concluded her eighth electrifying night at Wembley Stadium (thrilled to say I was there for the eighth night; Jim was there on Friday – yes, Jim Leaviss is a Swiftie), her influence has become undeniable. Extending beyond the realm of pop culture, Swift’s tour is generating billions in GDP, potentially influencing monetary policy decisions and presenting a unique challenge to policymakers.

The economic cycle is at an interesting inflection point where the effects of higher interest rates are becoming evident in numerous ways, be it a slowdown in the labour market, falling inflation, or wavering consumer and business confidence. Whilst a lower rate of inflation is welcomed, the important question remains: have interest rates been too high for too long, and has this caused irreparable damage to the economy in its current cycle?

Those young enough to still enjoy the music of Charli XCX, or parents with children tuned in to the latest trends, may be familiar with her latest work, Brat. This album has not only captivated young audiences, but has also sparked a cultural phenomenon dubbed ‘Brat Summer’.

Notwithstanding the recent bout of volatility, emerging market (EM) corporate credit has performed well this year, posting returns of 5.6% to July 2024 at the index level. There are several reasons for this, including the low leverage in this space, greater state participation in (and therefore protection of) the corporate sector than in developed markets (DM), and the relatively high-quality and short-duration nature of the universe.