January 21, 2019

Euro Area IG Corporate Bonds: Recent spread tightening unlikely to signal lasting rebound

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In Short

After a poor start into the year, EA IG corporate bonds have rebounded despite a strong issuance activity and ironed out the recent spread widening. But, we doubt that this indicates the start of a lasting rally.
Euro Area IG Corporate Bonds: Recent spread tightening unlikely to signal lasting rebound
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Highlights:

  • After a poor start into the year, EA IG corporate bonds have rebounded despite a strong issuance activity and ironed out the recent spread widening. But, we doubt that this indicates the start of a lasting rally.
  • While the fundamental situation is still sound, defaults marked a long-term trough in December, and valuations have improved, the technical situation sounds a note of caution.
  • Particularly the lack of support by the ECB in combination with a negative funds flow and the highest net issuance for a long time do not bode well for this asset class and is likely to trigger a further spread widening in 2019.
  • However, EA IG corporate bonds are still seen to perform better than EA government bonds in 2019.

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EURO AREA IG CORPORATE BONDS: RECENT SPREAD TIGHTENING UNLIKELY TO SIGNAL LASTING REBOUND

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