Investment-grade corporate bond exchange traded funds may still have legs as global central banks continue to combat stubbornly low inflation expectations and extend stimulus measures.
“The ECB and Bank of England (BOE) both started buying non-financial corporate bonds this year, driving down corporate credit spreads globally,” BlackRock strategists, led by Richard Turnill, said in a research note. “We see more spread compression ahead, based on our expectations for the ECB to extend its asset purchases.”
The BlackRock strategists are narrowing yield spread between corporate bonds and their respective government counterparts. With central banks implementing loose monetary policies, government bond yields have declined. Additionally, as central banks start hoarding corporate bonds, credit yields have also declined, alongside government bond yields.[related_stories]
Looking ahead, BlackRock expects low Eurozone inflation expectations to allow the ECB to extend its stimulus measures beyond March 2017, which could further support the credit market.
“Further ECB monetary easing measures could come as early as this week,” the BlackRock strategists said. “We see an extension of the March end point for the ECB’s QE program as more likely than an increase in the size of monthly purchases or a lowering of interest rates below the current -0.40% deposit rate.”