Corporate bond risk in Europe is heading for the longest decline in almost 10 years as investors bet that central bank stimulus measures will bolster the economy.
The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies is set for a sixth weekly decline, the longest streak since November 2006, according to data compiled by Bloomberg. The gauge fell one basis point on Friday to 68 basis points and is near the lowest level in a year.
The Bank of England cut interest rates for the first time in seven years on Thursday, announced plans to buy government and corporate bonds and followed the European Central Bank in signaling it will take more action if needed. Economists predict that a report today will show the U.S. employment market continued to improve at a pace that probably won’t prompt the Federal Reserve to raise interest rates this year.
“The idea that the central banks are willing to step in at any moment has meant that the perception of credit risk has decreased,” said Gordon Shannon, a London-based money manager at TwentyFour Asset Management, which oversees 6.4 billion pounds ($8.4 billion) of assets. “The market has got the joke that you don’t fight the central banks.”