May was a difficult month for European credit

May was a difficult month for some investment firms as spreads in hybrid corporate debt increased, which impacted performance, but opportunities were to be found in subordinated debt markets. The big risk in European credit is duration, the sensitivity to interest rate changes, and this risk is dependent on the US Federal Reserve’s activity, and US Treasuries and a question mark over French debt.

As Eric Vanraes believes investment managers need to consider handling the challenge of low yields and liquidity via hybrid-corporate bonds, subordinated debt and long-dated IG bonds, with duration hedged via a short position in the futures market.

Published on June 30, 2021

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