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Corporate bonds: Financials offer attractive valuations among EUR IG corporate bonds

 

The essential

In 2016 EUR-denominated corporate bonds were among the best performing asset classes on fixed-income markets: in fact, corporates outperformed also peripheral govies for the first time in years.

 

However, financials strongly underperformed in H1 and strongly outperformed in H2, and to be more precise, the trend really turned only in late July. In this piece we focus on recent trends, drivers and relative value of financial bonds vs their corresponding equity prices and vs non-financial corporate bonds. Top-down variables look friendly to financials in credit markets together with relative value considerations. The rise in inflation expectations and the turn in central banks’ “curve management”, together with the improved macro picture (last positive economic surprises and better-than-expected PMI indices) supports a recovery of the sector and the continuation of the relative trend vs non-financials that began last July. Net positive issuance, limited exposure to peripheral debt, together with improving loan trends and lower holdings of government debt are other factors support the case for financials in EUR corporate bonds at the start of this year.

 

CROSS ASSET (Download)

Flag-UK
January 2017

 

Flag-FR
Janvier 2017

 

The Article

L'Article

BERTONCINI Sergio , Head of Rates and FX Research
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Corporate bonds: Financials offer attractive valuations among EUR IG corporate bonds
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