“Accordingly, prices of bonds eligible for ECB purchases will remain subject to massive volatility: government bonds and investment-grade bonds of non-financial issuers in EUR,” he concluded.
TwentyFour Corporate Bond manager Chris Bowie is in the camp that believes ECB President Mario Draghi has signalled to the market that tapering has begun, “that this is not a programme that has limitless possibilities.” But he sees this tapering as the biggest risk to the European bond market.
“What Draghi has done has definitely supported the European economy and credit markets, but it has driven yields to levels well below what I would consider taking the risk in,” Bowie admitted. “I can buy the same companies in sterling and dollars for a lot more yield.”
Paradoxically, the ECB’s QE programme has pushed European investors into lower risk funds managed outside of Europe, like in the UK, Bowie says.
“Even if you’re in the lowest risk cash fund, you can still be down 1% a year. That is forcing European investors to buy lower risk investment vehicles that at least have the possibility of positive returns. When faced with a guaranteed loss, most investors would rather have the prospect of a positive return.”
