Has Europe’s Corporate Bond Market Got Ahead of Itself?

While the current spread levels indicate the market is sanguine about credit risk in Europe, we are concerned that the corporate market may have got ahead of itself

Dave Sekera, CFA 19 November, 2013 | 12:43PM

The European corporate bond market continued to outperform its US counterpart over the past month. So far in the fourth quarter, Morningstar's Eurobond Corporate Index has returned 1.16% compared with the US Corporate Bond Index, which has only risen 0.54%. Year to date, our Eurobond Corporate Index has risen 2.27%, blowing away our US Corporate Bond Index, which has lost 2.04%.

The outperformance of the European bond market has been driven by a combination of greater credit spread tightening among European corporate bonds, as well as lower losses from rising interest rates.

The current credit spread level of the European corporate bond market is the tightest it has been since May 2010—when the contagion from the Greek sovereign bond crisis began to spill into widespread concerns regarding the health of the European banking system. While the current spread levels indicate the market is sanguine about credit risk in Europe, we are concerned that the corporate market may have got ahead of itself.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Intesa Sanpaolo1.58 EUR0.24
UniCredit SpA7.08 EUR0.33

About Author

Dave Sekera, CFA  is a senior securities analyst with Morningstar.

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