專家「聯」綫：歐元信貸提供多重優勢（只提供英文版本）
Euro-denominated corporate bonds with good to very good credit ratings offer an attractive risk-return ratio, especially in turbulent times. Christian Kopf, Head of Fixed Income and FX at Union Investment, explains what else speaks in favour of this fixed-income segment – especially from an international perspective.
Hello Christian, what are the arguments in favour of euro-denominated corporate bonds in the current environment?
Since the normalisation of the interest rate environment in Europe, euro credits offer attractive coupons combined with the prospect of roll-down yields, as the yield curves in Europe have also normalised, i.e. steepened. In a historical comparison, euro-denominated corporate bonds are more or less fairly valued, as our regression analysis shows. In a long-term comparison, the risk premiums of US dollar securities are usually somewhat higher due to their overall longer duration, and the securities also have a somewhat steeper curve. Recently, however, they have fallen significantly.
Risk premiums have already converged very strongly, is there still enough support for the euro side?
The spreads of euro credits are currently trading at the same level as those of US dollar-denominated credits, but in a historical comparison, they were significantly wider on average on the dollar side due to the longer duration in this segment. From this perspective, we believe that the euro segment remains well supported. In the investment grade (IG) segment in particular, the situation is also good from a fundamental point of view and balance sheets are solid. This applies to both corporates and bank bonds. The analysis with our in-house analysis platform also shows that the Trump tariffs are unlikely to have a major impact on our IG universe across the board. Defaults in the IG sector are extremely rare. The premium can therefore most certainly be collected until maturity.
Diversification benefits of EUR Credit are significant
Euro Credit had similar returns but lower volatility.
Source: GCP, ICE BofA Merrill Lynch. 28.02.2025 Monthly USD-hedged total returns from 2002 to 2025 for C0A0 (US IG Corporate) and ER00 (EUR IG Corporate) Indices are used.
Source: GCP, ICE BofA Merrill Lynch. 28.02.2025 Monthly USD-hedged total returns from 2002 to 2025 for C0A0 (US IG Corporate) and ER00 (EUR IG Corporate) Indices are used.
What is the supply and demand situation?
There is no massive flood of new issuances at the current margin. The supply is rather limited. We also assume that investment funds will tend to shift away from US assets in favour of European assets for valuation and diversification reasons. We therefore expect demand for euro credits to increase outside of the eurozone as well.
What are the current arguments in favour of euro credits for non-European investors?
Various aspects. Growth now also appears to be stabilising in Europe and China. Even though we do not expect any further interest rate cuts in the US, our economists are forecasting two more rate cuts in the eurozone, bringing the rate down to a landmark level of two per cent in June. This is possible despite the political will to significantly increase infrastructure and defence spending, as these measures will take time to implement. They are also coming up against an economy that is currently underutilised, which is why the inflationary effect is likely to be minimal for the time being. This means that euro credits can continue to offer attractive yields, and we recommend the medium maturity range in particular.
The Sharpe ratio of a euro credit investment strategy is 0.94 compared to one based on US dollars. However, due to the currency hedging of our mandates, this does not result in a different beta factor.
Euro Spreads converged to USD but there's room for more performance
Source: GCP, ICE BofA Merrill Lynch. 28.02.2025 *Spread differential is obtained from monthly cross-sectional regressions of the form: 〖OAS〗_it=f(Currency,Rating,Duration,Sector,Region,GreenBond,CSPP) for Global IG Index.
Does this mean that with currency hedging there won't be any disadvantages?
No, a dollar-hedged euro credit portfolio offers a comparable return, but a better risk-return ratio with lower duration. The buffer for interest rate changes is comparatively high, but the sensitivity to interest rate changes is less pronounced.
Sensitivity of IG Credit to Yields and Spread Changes on 1Y Horizon. USD Hedged Returns*.
Does this mean that with currency hedging there won't be any disadvantages?
No, a dollar-hedged euro credit portfolio offers a comparable return, but a better risk-return ratio with lower duration. The buffer for interest rate changes is comparatively high, but the sensitivity to interest rate changes is less pronounced.
European IG Credit: higher Carry lower Risk
Source: GCP, ICE BofA Merrill Lynch. 04.03.2025 Returns are calculated bottom up as Effective Yield + Rolldown + 12M FX Hedge and aggregated using market value weights. Sensititvities assume a parallel shift to the yield curve at the end of 12M period.
Why should an investor have their fixed-income portfolio managed by Union Investment?
Methodological expertise, disciplined execution and replicability are crucial to the success of a fixed-income investment. This can only be achieved with a strong team that develops appropriate solutions. I am proud of the fact that this is part of our everyday practice. For example, we offer particular expertise in an approach to selecting corporate bonds that combines quantitative and fundamental factors – a so-called quantamental approach. This allows us to recognise, for example, the mispricing of certain issuances on the yield curve.
What other special competences does Union Investment's portfolio management bring to the table?
In view of the increased geopolitical tensions, thorough bottom-up analysis of individual issuers is particularly important. Our in-house Global Credit Platform (GCP) provides an overview of the issuer universe and supports portfolio management in real time in research, portfolio construction and trading decisions. The focus here is on identifying and minimising downgrade and default risks. We are not reliant on rating agencies, but create our own forecasts, for example to evaluate possible rating migrations. Quantitative signals and technical factors in the market such as trader positioning, which are also analysed using artificial intelligence, are also included in the specific investment decision. Overall, this quantitatively supported bottom-up approach helps to better structure a fixed-income portfolio. The quality of fundamental bond selection is reflected in the fact that a clear additional yield has been realised with overweights compared to underweights since 2017.
Source: Union Investment, all information, explanations and illustrations are as of 14 March 2025, unless otherwise stated
Why should an investor have their fixed-income portfolio managed by Union Investment?
Methodological expertise, disciplined execution and replicability are crucial to the success of a fixed-income investment. This can only be achieved with a strong team that develops appropriate solutions. I am proud of the fact that this is part of our everyday practice. For example, we offer particular expertise in an approach to selecting corporate bonds that combines quantitative and fundamental factors – a so-called quantamental approach. This allows us to recognise, for example, the mispricing of certain issuances on the yield curve.
What other special competences does Union Investment's portfolio management bring to the table?
In view of the increased geopolitical tensions, thorough bottom-up analysis of individual issuers is particularly important. Our in-house Global Credit Platform (GCP) provides an overview of the issuer universe and supports portfolio management in real time in research, portfolio construction and trading decisions. The focus here is on identifying and minimising downgrade and default risks. We are not reliant on rating agencies, but create our own forecasts, for example to evaluate possible rating migrations. Quantitative signals and technical factors in the market such as trader positioning, which are also analysed using artificial intelligence, are also included in the specific investment decision. Overall, this quantitatively supported bottom-up approach helps to better structure a fixed-income portfolio. The quality of fundamental bond selection is reflected in the fact that a clear additional yield has been realised with overweights compared to underweights since 2017.
Source: Union Investment, all information, explanations and illustrations are as of 14 March 2025, unless otherwise stated