Euro corporate bonds: life after QE and rate hikes

Many investors may be fretting that the end of the European Central Bank’s (ECB) quantitative easing (QE) programme later this year spells bad news for credit. The conventional view is that the end of large-scale bond buying, accompanied by rising interest rates, will undermine returns from fixed income assets. Our research questions that assumption. Our modelling suggests that holders of credit can continue to expect positive returns unless rates rise much faster than expected.

We recently published research on the relationship between rising interest rates and US investment grade corporate bond returns. Here we use a similar approach to look at what the effect of rising interest rates could be in Europe, given the region’s much lower bond yields and less mature economic cycle.