- 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.