The bottom line first : ECB intervention, European growth and the 'hunt for yield' should continue to support spreads in 2016 but we see higher downside risk versus one year ago. In 2015, European credit spreads widened despite the added liquidity, as other factors weighed on investor sentiment.
Depending on how the European economy develops , we may see Mario Draghi dig deeper into the ECB tool chest, perhaps expanding the TLTRO to include other assets (e.g. corporate bonds).
Global economic growth is forecast to be healthy in 2016(*). However, we see risks from large growth discrepancies between net exporters of commodities (i.e. Brazil, Russia and Africa) and importers such as (Europe, US, China and South East Asia).
Defaults are expected to tick up following the continued rout in commodities in 2015(*). In the Nordics, the volume of debt trading at distressed levels suggests that we should witness a higher number of restructurings in 2016.
The commodities rout has seen the difference in performance between sectors increase and picking the right credit has become more important than in previous years of broad-based strong performance.
This year should continue to see healthy primary market supply balanced by investor demand and the hunt for yield . Although corporate redemptions seem relatively low going into the year, M&A activity is still at high levels historically. Also, we expect to see primary supply from US issuers taking advantage of the yield differential between EUR and USD debt.
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