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Euro periphery debt breaks free of corporate credit risk 

December 9, 2015

The Economic Times

For the first time since the financial crisis, investors are starting to differentiate between peripheral euro zone government bonds and corporate credit, thanks to ECB support and growing confidence that Europe's debt crisis is over. 

The Markit iTraxx Europe index, which reflects the cost of credit protection on company debt, began to diverge from the euro zone periphery, as measured by the yield gap between 10-year Italian and German government bonds, in the third quarter. 

The two had moved almost in lock-step since the height of the euro zone crisis in 2011 as investors viewed the sovereign debt of countries such as Italy, Spain and Portugal as being at least as risky as similarly rated corporate bonds.

A marked divergence has arisen since late July. The iTraxx index, seen as a gauge of corporate credit risk, hit a one-year high in October just as falling peripheral bond yields pushed the Italian BTP spread over Bunds to its narrowest in five months. Read more

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