Euro area ig corporate bonds: some leeway for tighter speards still left

The rally in euro area (EA) corporate bonds has continued unabated for three months. Year-to-date spreads have tightened by more than 40 bps and corporates have yielded a total return of more than 3%. The lack of ECB purchases and the strong issuance activity did not prevent the strong performance as private sector demand for this asset class was very strong.

Highlights:

  • The rally in euro area (EA) corporate bonds has continued unabated for three months. Year-to-date spreads have tightened by more than 40 bps and corporates have yielded a total return of more than 3%.
  • The lack of ECB purchases and the strong issuance activity did not prevent the strong
    performance as private sector demand for this asset class was very strong.
  • The current environment is quite benign as the macroeconomic data flow is expected to stabilize and the even more accommodative stance by the ECB will keep benchmark yields on a low level.
  • However, the air is getting thinner as corporate yields are not far from the historical lows and spreads have reversed the Q4 2018 widening completely. Still, we continue to recommend overweighting EA corporate bonds to not miss the final stage of the rally.

Download the full publication below

EURO AREA IG CORPORATE BONDS: SOME LEEWAY FOR TIGHTER SPREADS STILL LEFT

RELATED INSIGHTS

A (TEMPORARY) COVID ‘LEG DOWN’
The rise in new Covid-19 cases and renewed lockdowns across Europe are casting long shadows over the economic recovery and markets. Yet much more targeted restrictions, a strong Chinese rebound and continued massive fiscal and monetary policy support will keep the second wave’s impact far more muted than in spring.
COVID-19 FACTS & FIGURES
According to the IMF’s Managing Director, strong international cooperation on coronavirus vaccine could speed up the world economic recovery and add $9 trillion to global income by 2025. A WHO trial found that Remdesivir, Hydroxychloroquine, Lopinavir and Interferon have little or no effect on hospitalized Covid-19 patients.
INCORPORATING QUANT SIGNALS INTO EU EQUITY SECTOR/STYLE STRATEGY: MAINTAIN A TILT TO CYCLICALS AND VALUE
We present an update of our proprietary equity valuation tool, based on quant models. It provides indications of over- or undervaluation for different sectors and styles of European equities, which is further enriched by our qualitative analysis.