Henderson: ECB stance paves way for European credit

The ECB’s accommodative stance paves the way for European credit to outperform in 2016, according to Henderson’s head of fixed income Phillip Apel.

Henderson: ECB stance paves way for European credit


Europe offers a more supportive fixed income environment, according to Apel, as its credit markets face a less challenging backdrop than the US.

He also pointed to more favourable technical conditions in terms of supply, and “the yield-seeking activities of investors facing negative interest rates in some European countries”.

While more optimistic now than around this time last year, Apel still ultimately believes the ongoing withdrawal of liquidity and periodic repricing means investors need to be selective. 

The positive sentiment is centred away from sovereign markets due to yields being higher and more widespread than at the start of 2015 because of a repricing of credit markets this year, he explained. Therefore, he added, valuations for the medium term are at a more attractive starting point.

“There will likely be more volatility in 2016 and defaults are set to rise but this will create opportunities and as an active manager you have to look at that with enthusiasm,” he said.

As a house, Henderson expects inflation to pick up towards central bank objective levels, partly due to the year-on-year comparisons that will see some of the sharp commodity price drops fall away.

As a background, Apel said he expects growth in the US and Europe to be around trend, but still challenged in emerging markets.

“In our view, the Fed will be on a path of tightening that is somewhat faster than the market currently expects but will still be gradual compared to the historical average,” he said.

Moreover, Apel said the repricing of dollar liquidity will present periodic challenges for all financial assets, including fixed income.

In his view, US policy will contrast with Japan and Europe: “We expect to be relatively defensively positioned towards duration exposure and there may be some upward pressure on spreads in investment grade.

“Defaults in high yield are likely to pick up, albeit driven by the commodities sector this will renew the focus on idiosyncratic risk.”