Euro Area
Despite concerns about fiscal sustainability, a rise in term premia, and attacks on central bank independence, monetary policy remains the primary driver of bond markets. In our Q3 Review & Outlook, we update our views and identify opportunities in government bonds, short-term interest rate futures, global yield curves, inflation-linked bonds, and credit.
Monetary policy divergences are re-emerging. We rely on BCA’s Central Bank Monitor to assess the current policy stance of major central banks, and highlight the tactical opportunities across bond markets and currencies.
One year in, the EU is progressing slowly in implementing Mario Draghi's recommendations to restore Europe’s competitiveness. The lack of progress is due more to the various pushbacks from European capitals and the lack of proper funding than a lack of ambition. Our overall assessment remains positive, given the EU is adopting many of the priorities from Draghi’s report.
Structural tailwinds help explain tight credit spreads. In Europe, we see room for further tightening. Stay underweight US credit amid cyclical risks, but upgrade Euro Area IG to overweight and HY to neutral.
