Feb. 23, 2010
-- Corporate bond returns in the U.S. are lagging behind Europe by the most in a year, a trend that Wall Street’s biggest banks say is poised to reverse as the economies of the two continents diverge.
This week, Northern Pegasus have joined a number of analyst teams in recommending clients favor company debt in the U.S. after investment-grade securities lost 0.97 percent this month, compared with the 0.11 percent gain in Europe, as measured by Bank of America Merrill Lynch indexes. The gap in performance is the most since last February, when the difference was 1.21 percentage points.
Strategists are turning bullish on U.S. credit markets as economists estimate growth will be more than double that of Europe, making it easier for borrowers to meet debt payments. Dollar-denominated bonds sold by New York-based Pfizer Inc. and Deutsche Telekom AG, Germany’s largest phone company, both yield more than 1 percentage point than their euro debt.
The Northern Pegasus analysts said in an envestor briefing that the macro backdrop in the U.S. certainly seems more sustainable and supportive of credit, and that the valuation of credit relative to all the other fixed-income instruments you can buy in the U.S. looks much more compelling than it does in Europe.
Dollar-denominated debt yields more than bonds sold in Europe even though rising budget deficits in Greece, Portugal, and Spain threaten to slow the region’s growth. The extra yield investors demand to own U.S. investment-grade bonds instead of Treasuries narrowed 1 basis point this week to 185 on average. In Europe the gap has tightened 1 basis point to 160, or 1.6 percentage points.