(Bloomberg) -- The end of European Central Bank corporate bond purchases is not yet priced in to euro investment grade spreads, which could widen by as much as 20 basis points this year, according to Goldman Sachs Group Inc. strategists.
“The ECB's end of QE will fuel a material increase in the net supply of fixed income securities that will be available to private investors,” Amanda Lynam, senior credit strategist at the U.S. investment bank, said in an interview. “Prices will need to adjust in order to attract the marginal buyer.”
Spreads for euro investment grade non-financial corporate bonds were at 138 basis points on April 7, a Goldman note shows. According to a Bloomberg Barclays index, euro high-grade non-financial bond spreads are quoted at about 131 basis points. A rise of 20 basis points would bring them back to near their peak at the start of Russia's invasion of Ukraine.
Europe's Company Debt Market Braces for Hit From Early ECB Exit
The ECB has been buying corporate bonds since 2015 and in 2020 launched a pandemic emergency purchase programme to support companies across the continent and prevent an expected wave of defaults. The central bank will slow bond buying to 30 billion euros ($33 billion) in May then 20 billion euros in June and the program could be halted as soon as the third quarter.
“Purchases of high-quality bonds had incentivized investors to rotate into riskier and higher carry assets,” Lynam said. “Going forward, the case for being overweight high carry securities has weakened.”
ECB Is Crafting a Crisis Tool to Deploy If Bond Yields Jump
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