Bond managers react to Basel III bank reforms

Fund managers expect the Basel Committee's new rules on bank capital adequacy to have a major impact on financial sector debt and equity markets.

They point to the impact on bank debt because financials comprise more than 40% of the UK corporate bond indices, and 31% of this is banking debt broken down into the various levels of debt banks must currently hold. This debt comprises 12% senior, 12.5% lower Tier 2, 1.9% upper Tier 2, and 5% Tier 1, and combined they make up the highest yielding component of the indices. On Sunday banking regulators voted to increase the minimum level of core Tier 1 capital to 7%, up from the current 2%. The new rules will begin to come into force from January 2013, and will be fully implemented by ...