The case for euro credit | Insight Investment

The spread compression that has characterised investment grade credit markets throughout 2024 might create some hesitancy from  those looking to allocate capital to the asset class. However, in our view, the case for euro-denominated investment grade credit remains attractive for investors for several reasons, including:

1. High relative yields compared with to the last decade, with absolute yields slightly above the 80th percentile of the last decade.
   
   
2.  Attractive relative value, with spreads spread between euro-denominated investment grade credit and US dollar-denominated investment grade towards the higher end of spread levels witnessed since 1999.
   
   
3. Strong corporate fundamentals, given the euro investment grade market can boast strong interest coverage ratios and acceptable net debt to EBITDA ratios.
   
   

In addition, we believe the current environment, characterised by high levels of gross issuance, divergence in economic growth rates between euro area economies and steeper yield curves, should provide opportunities for active managers to add value.   

Euro investment grade yields relative to history

Source: Insight Investment, Euro Corporate is represented by the ICE BAML European Corporate Index (ER00). Data as of 31 October 2024. Percentile data ten years to that date