Investment grade credit markets provided investors with strong performance in 2014, much better than many commentators had anticipated. But with credit markets testing their highs, now is an opportune time for investors to reconsider how their credit portfolios might be affected as the world adapts to diverging US and eurozone monetary policy.
The first quarter of 2015 has seen another leg in the long-running rally in European investment grade credit. The European Central Bank (ECB) finally side-stepped German-led opposition to sovereign quantitative easing, outlining measures that exceeded most market participants’ expectations. The ECB announced that it intends to expand its balance sheet by around 50% over the next 18 months, making purchases totalling around €1.1trn. Investors reacted by selling the euro and buying both stocks and bonds. Eurozone government bond yields fell to record lows, while European corporate bond spreads fell further.
Together with an agreement among Greece’s international creditors to extend the country’s bailout programme, confidence in the eurozone has jumped1. Stock indices across Europe rallied to record highs, reflecting investors’ exuberance, while also under- scoring the degree of uncertainty that existed last year and how those concerns have abated.
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