This year has seen a continuation in 2016's trend for corporate credit. The European Central Bank (ECB) purchase programme under its quantitative easing policy has pushed corporate credit spreads tighter, starting with high-quality corporate issuers, then impacting sub-investment grade names.
On the other hand, the financial sector has been on a different course. Credit spreads for banks lagged throughout 2016 and remained at elevated levels due to a range of factors. Interestingly, this convergence has not been driven by the same technical squeeze supporting corporates, but by a genuine improvement of bank fundamentals. Rates have started to increase; pressure from regulations has alleviated; European politics turned a corner with Emmanuel Macron's election; and the riskiest banks in Spain and Italy have been merged or recapitalised. Quarter after quarter, banks contin...
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