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This piece represents a reality-check on credit valuations after the recent recovery in the Eurozone credit market. Despite the October rally in credit markets, in fact, current spreads are still above 2015 lows by 120 b.p. and 33 b.p., respectively for speculative grade and high grade. Recent evidence shows that spreads still look attractive with respect to current levels in PMI and sovereign spreads, while at the same time being slightly rich vs equity implied volatility.
The beginning of 2015 holds the prospect of a new quantitative easing programme from the European Central Bank. The 50% increase in the ECB’s balance sheet announced by Mario Draghi will certainly have major consequences, including confirmation that short rates will be kept at zero and that long rates will decline further.
Global Head of Research
Insurers have made significant efforts to improve solvency levels, to remit cash up to the holding company and to return this to shareholders. The attractive dividend yield and potential for additional capital return in some cases has started to attract investors’ attention.
Esther DIJKMAN DULKES
Equity Analysis at Paris