Active deleveraging of debt by companies on the continent is also a signal they are being cautious with their balance sheets, another aspect which puts the European corporate bond market in a strong position this year.
Kjaersgaard added: “By contrast, US companies’ borrowing has been creeping up and more bond issuance is funding acquisitions or share buybacks. This behavior shows that the US is further along in the current credit cycle than Europe.
“Europe’s earlier credit cycle dynamics count in its favor – and should help ensure that corporate bond defaults remain few and far between and continue to lag levels in the US.”
With the three “weighty ballasts” to protect it, the corporate bond market will thrive even despite the possibility of political volatility with both French and German key elections on the horizon and the imminent start of Brexit negotiations for the UK, Kjaersgaard believes.
He added: “These challenges may well trigger bouts of market volatility. As the ECB can calibrate bond buying to tackle short-term turbulence, Europe’s corporate bond markets look set to be a relative beacon of stability in the year ahead.”
