The ECB began buying a wide variety of non-bank European corporate bonds on June 8th. This new purchase program is part of the ECB’s 80-billion euro monthly program meant to push inflation closer to its 2% target. We anticipate the ECB will buy at least $5 billion of corporate bonds monthly–which is a material amount and should support tighter corporate bond spreads in Europe.
Support for European corporate bonds also helps U.S. corporate bonds. As spreads on European bonds tighten, U.S. bonds look more attractive, and U.S. corporate bonds are already attractive due to the higher interest rates in the U.S. compared to the European Union. This is double barreled support!
The ECB’s purchases of private and public securities are anticipated to continue until March of 2017, or until the ECB wins its battle against low inflation. The buying could continue for some time, which we believe will aid the continued strong performance of U.S. corporate bonds, and which supports our overweight to the sector.
Global Investors Like Higher Yields in the U.S. – Now They Have Another Reason to Buy Corporates
Investors Anticipate the ECB Buy Program (Weekly Flows into European Investment Grade Bond Funds)
Source: ECB, Wells Fargo