Euro investment grade credit in today’s world | Insight Investment

"Euro investment grade credit remains one of the more attractive opportunities in fixed income today, offering appealing income, sound fundamentals and diversification benefits, though success may depend on active and selective investing."

Euro investment grade (IG) credit, bonds issued by financially strong companies and with credit ratings of BBB- or better, continue to occupy an attractive middle ground between lower-risk government bonds and higher-risk high yield debt.

We believe that, for investors seeking income and diversification, the asset class remains compelling, although today’s market conditions also present some challenges. In our view, corporate financial fundamentals generally appear supportive, while yields continue to sit around levels that compare favourably with historical experience. We add our observations of strong investor demand as a factor helping to underpin the asset class.

Set against that are some less supportive factors. These include valuations that are expensive when viewed through the lens of credit spread levels versus government bonds, alongside growing amounts of new bond issuance.

Figure 1: Euro investment grade yields remain well above post-Global financial crisis experience