Divergence between European and U.S. monetary policy is boosting the attractiveness of euro corporate credit amid continued coronavirus upheavals, according to BNP Paribas SA.
“There is less downside in European credit because it has much more robust support,” Viktor Hjort, the bank’s global head of credit strategy, said in an interview. “The ECB buys a lot more corporate bonds than the Fed in both absolute and relative terms.”
The European Central Bank is also expected to boost stimulus at a Dec. 10 meeting, even as the Federal Reserve returns unused funds meant to backstop five emergency lending programs. Hjort also pointed to a likely slowdown in issuance as a spur for euro credit.
Virus upheavals are hurting economies around the world as governments impose restriction to help curb the spread of the pandemic. The euro area is slipping into another contraction, while U.S. applications for state unemployment benefits have posted the first back-to-back weekly increases since July.
A successful vaccine likely offers the best hope for an end to virus disruptions. Hjort’s base case is that enough people will have received injections by at least the second half of next year to reexamine policy support.
Sectors driven down by the pandemic could prove to be bargains in the event of a successful vaccine, Hjort said. Examples include airport and toll-road bonds, as well as bank Additional Tier 1 notes.
“If there is light at the end of the tunnel, there are still assets that are too cheap in Europe,” he said. “That’s where things are going to play out in the next few months.”