Corporate Treasury Weekly: expect more defensive FX positioning as the summer break nears

16 July 2021

Giles GaleHead of European Rates Strategy

View bio

Other insights

View more insights

Breaking down trending trades & themes to help corporate treasurers get ahead of the latest issues shaping markets.

The Delta virus variant is giving markets cause for concern, but UK data leaves us more optimistic about the effectiveness of vaccines. Still, this means synchronised global growth will likely start to give way to vaccine-driven divergence, affecting FX in particular.

  • The Delta coronavirus variant is weighing on markets, but evidence gives us reason to be optimistic: case rates are rising quickly in Europe, prompting some new restrictions in Spain (Catalonia appears to be the worst affected region). But in the UK, which has an elevated number of Delta cases, the relationship between case numbers and hospitalisations is much flatter than it was in previous waves, which leaves us more optimistic about the market outlook.
  • We expect more defensive FX positioning as growth expectations shift towards highly vaccinated economies: the global synchronised growth story is giving way to regional growth driven by vaccinations and lockdown risk, where regions like the UK and the UK are performing well (as are their respective currencies).
  • Fed Chairman Jerome Powell reaffirmed the ‘transitory inflation’ narrative in his semi-annual monetary policy testimony on Wednesday: Powell acknowledged that inflation "has increased notably and will likely remain elevated in coming months before moderating,” citing the usual suspects – base effects, re-opening impacts, and supply-related bottlenecks, and giving us little reason alter our outlook.
  • The European Central Bank’s (ECB) Strategic Review was as expected, but we could see an extension of asset purchases in the future: the ECB introduced a symmetric inflation target of 2% (which means undershoots are as bad as overshoots) and reaffirmed it would remain flexible and pragmatic on the use of unconventional tools, as expected. But ECB President Christine Lagarde also hinted last week that getting to 2% requires further force or persistence, implying that quantitative easing (QE) is likely to be extended soon. The ECB meets on July 22.
  • More QE should insulate credit and tame bond yields: lower-for-longer monetary policy and continued QE support in Europe should keep bond yields in check, even in an environment of strong growth momentum and broadly rising long-term rates.

Sterling bond investors are going long

The past week marked an interesting test for investor appetite around longer-dated bonds, with Flagship and Wellcome Trust raising Sterling in 40-year and 50-year notes, respectively. These maturities are rarely seen in the corporate space, but both transactions received a warm reception from investors, and could entice more issuance from others looking to capitalise on lower rates. If this keeps up, we could start to see new issue premiums (the concession paid on issuing new bonds) start to rise for longer-dated bonds.

Summer break for corporates

On the other hand, it’s starting to feel like a summer break is upon us in corporate markets – for the first year in quite some time. Some treasurers we speak with are using the opportunity to upgrade their medium-term note (MTN) programme documentation – for instance, by adding green and sustainability use of proceeds language or KPIs, or adding new potential funding instruments like hybrid bonds into the mix, to better align their financial strategy with broader corporate objectives and make it more flexible

Our latest quarterly economic outlook just dropped, and it’s clear to us that although global growth is strong, rising inflation – and how central banks tackle it – will be the key risk to look out for in Q3.

The macro schedule gets quite busy from August onward, providing ample opportunity for central bank rhetoric and shifting monetary policy tactics to reverberate through markets and create volatility. The below is a snapshot of all the key risk events to look out for.

Sources: NatWest Markets. FOMC is the Federal Open Market Committee. PEPP is the Pandemic Emergency Purchase Programme. APP is the Asset Purchase Programme.

For the full weekly newsletter login to Agile Markets. Don’t have access? Contact us here.


This document has been prepared for information purposes only, does not constitute an analysis of all potentially material issues and is subject to change at any time without prior notice. NatWest Markets does not undertake to update you of such changes.  It is indicative only and is not binding. Other than as indicated, this document has been prepared on the basis of publicly available information believed to be reliable but no representation, warranty, undertaking or assurance of any kind, express or implied, is made as to the adequacy, accuracy, completeness or reasonableness of the information contained in this document, nor does NatWest Markets accept any obligation to any recipient to update or correct any information contained herein. Views expressed herein are not intended to be and should not be viewed as advice or as a personal recommendation. The views expressed herein may not be objective or independent of the interests of the authors or other NatWest Markets trading desks, who may be active participants in the markets, investments or strategies referred to in this document. NatWest Markets will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser; nor does NatWest Markets owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on NatWest Markets for investment advice or recommendations of any sort. You should make your own independent evaluation of the relevance and adequacy of the information contained in this document and any issues that are of concern to you.

This document does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any investment, nor does it constitute an offer to provide any products or services that are capable of acceptance to form a contract. NatWest Markets and each of its respective affiliates accepts no liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this material or reliance on the information contained herein. However this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.

NatWest Markets Plc. Incorporated and registered in Scotland No. 90312 with limited liability. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. NatWest Markets N.V. is incorporated with limited liability in the Netherlands, authorised and regulated by De Nederlandsche Bank and the Autoriteit Financiële Markten. It has its seat at Amsterdam, the Netherlands, and is registered in the Commercial Register under number 33002587. Registered Office: Claude Debussylaan 94, Amsterdam, the Netherlands. Branch Reg No. in England BR001029. NatWest Markets Plc is, in certain jurisdictions, an authorised agent of NatWest Markets N.V. and NatWest Markets N.V. is, in certain jurisdictions, an authorised agent of NatWest Markets Plc. NatWest Markets Securities Japan Limited [Kanto Financial Bureau (Kin-sho) No. 202] is authorised and regulated by the Japan Financial Services Agency. Securities business in the United States is conducted through NatWest Markets Securities Inc., a FINRA registered broker-dealer (, a SIPC member ( and a wholly owned indirect subsidiary of NatWest Markets Plc. Copyright 2021 © NatWest Markets Plc. All rights reserved.