Corporate bond yields have plateaued in Europe. The continuous, substantial rise that has been observed since the beginning of March, from 0-40 to 120-160 bps for corporates rated A to BB and bonds of 5-years maturity, has been suspended (Figure 6). Currently, corporate bonds spreads stand well less than half-way from the peak reached during the Lehman crisis, at the beginning of 2009. The rise in corporate bond yields has been symmetric across the rating spectrum. Indeed, at the current juncture, the sectoral dimension may dominate considerations usually brought forward to estimate risk: passenger airlines, tourism, automobile, hotels and restaurants and non-food retail sector are the most exposed, while pharmaceuticals, utilities, energy and digital are cushioned. This is reflected in the wave of downgrades implemented by rating agencies in the previous week.
Sovereign bond yields were much less volatile last week, and, when moving, tended to fall. Cyprus, Greece, Italy, Portugal and Spain experienced a large decline on Thursday (Figure 7), when the ECB declared that it would scrap its self-imposed bond-buying limit of a third of a member state’s debt. The compression of bond yields stretched beyond the euro area, with the Czech Republic, Hungary, Poland and Romania also experiencing a drop in yields. Outside the EU, the UK was downgraded by Fitch to AA- with a negative outlook.