Tight spreads but high yields: spotting value in European credit

Spread compression has been a consistent theme this year, and with credit spreads in some areas tighter than their long-term averages, fixed income investors could be forgiven for thinking that markets are too expensive right now. But credit spreads are just one side of the equation when considering the strong corporate fundamentals and that a resilient economy reduces the likelihood of a hard landing. History has also shown that credit spreads can remain tight for extended periods and therefore investors should also consider the all-in yields currently. Given how attractive these are in European credit, we think it's a ripe arena, particularly within financials, investment grade and asset-backed securities (ABS).