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European corporate bonds option

Significant sales touched European corporation bonds in the end of the year in the context of the risky reminder. Most of the most dangerous assets have been recovered with a surprising exception: BBB European bonds. Today, this European credit market segment, we believe, has an attractive relative value, although we keep a neutral view of the general assets category.

Difference in the spread of European profitability for corporate 2014-2019 bonds

JPEG - 53.8 kb
Past performance is not a reliable current or future performance indicator. It is impossible to directly directly invest in an index.

Source: BlackRock Investment Institute, Bloomberg and J.P Morgan data, in January 2019. Notes: The lines show the difference, in percentage points, of the distribution of corporate bonds denominated in different valuations. For each level of assessment, the German government bonds are extended. J.P Morgan A, BBB and BB All-Maturity Euro Credit Indices represent company bonds.

BBB bonds have the lowest level of Investment Grade (IG). For this reason, the sales of sales are more damaging, but even when they are sold, they are recovered too quickly. The BBB's bonds had significant departures for the end of 2018 to achieve higher returns. Nonetheless, the revision suffered by other dangerous 2019 assets was not benefited. The bottom line of the above graph shows this disconnection. The difference between corporate bonds and BB rated by BBB (ranked by grade scale) is maintained around the levels observed at the end of the year. usually as it usually happens in volatile periods. At the same time, bonds such as BB have high-performance or high-performance categories that are more dangerous, have BBB-rated and high-quality bonds, reducing their differences in expansion (see bottom line). is at the top of the graph).

A beneficial global situation

In December, the emergence of risk assets was driven by worries over global growth. Beliefs on the reduction of purchases of the European Central Bank (BEC) have had a negative impact on European credit. This year, the ECB, from our point of view, should only buy about 2% of the European corporate bond, compared to 15% in the previous year. At the end of the recovery of BBB bonds, the increase in BBB issues by the eurozone financial companies appears to be partly due to the strengthening of their balances and their deterioration in their valuations.

We can continue with a high level of emission, but we believe that the overall European Union market, including the BBB class, will be able to achieve better recovery conditions.

The fears of the 2019 recession are sharpened (see Global Investment Outlook 2019: 2019 Global Investment Outlook). We are seeing a slowdown in world growth, although it is enough to predict the large central banks, but it is not enough for today's period. The growth of the euro zone is expected to stabilize in the downward trend of 2019, thanks to the ECB's policy, more fiscal stimuli and the disappearance of special events, such as the regulatory rupture. automotive industry ECB policy confirmed last week as planned. We will see that the growth risks have increased. That is, in our opinion, the growth of the ACB and inflation forecasts are optimistic and the rate of increase of 2019 is unlikely. The US Federal Reserve (Fed) must expire at least until September. All this creates a positive global credit background.

Thousands of European Union medium-sized threats, which are still slow and commodious growth in the European economy, continue to be cautious about European risk assets.

Medium-sized European threats, which are still a major economic growth and trade base, are very careful about Europe's active risks. US bonds are accepted by more than Eurovisions, as Fed has expanded its policy. We believe, however, that the European bonds corporations provided by BBB invest in dollars and investors in euros. It would be a risky re-emergence that would be dangerous and that it would be the main risk that would cause fears of geopolitical tensions. We must have the potential of resolving growth or political problems in the Eurozone, within Brexit, to be very positive for European credit.

In addition, in the case of European bonds, we are subcontracting the European sovereign bonds, as we expect, gradually gradually gradually gradually progressing gradually gradually to gradually evolve.

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