Research and Rankings Research Teams
February 12, 2013
J.P. Morgan Tops Europe Fixed-Income Research Ranking
The European Central Bank's recent moves have helped lighten the mood for investors in the euro zone.
By Carolyn Koo
Arne Staal, top left; Muhammad Umar Bilal Hafeez, top right; James Reid, bottom left; Albert Desclee, bottom right.
In a January speech to frankfurts chamber of commerce, European Central Bank president Mario Draghi declared that the darkest clouds over the euro area subsided in 2012. Many market observers agree and credit Draghis July declaration that the ECB would do whatever it takes to preserve the euro with calling forth the necessary sunshine to dispel the gloom. Words alone would likely have had little effect, but the bank followed up with the creation of Outright Monetary Transactions, a program through which it would buy the bonds of member countries, in effect becoming a lender of last resort.
These moves appear to have removed much of the negative overhang weighing on European markets, paving the way for double-digit returns for the regions high-yield, investment-grade and sovereign debt offerings. Since the as-yet-untapped OMT was introduced in September, the bonds of some of the euro zones most troubled economies Greece, Ireland, Italy, Portugal and Spain have risen by 11 percent or more, through mid-February. But Europes economic situation is still precarious, and any number of potential shocks could widen spreads and dampen returns. Moreover, policymakers have yet to address the regions long-term growth prospects.
One key issue for analysts and investors is determining whether the current calm is going to last. Laurence Kantor, Barclayss New Yorkbased global head of research, believes it will. Youve seen a rally in nearly all the European markets since last summer stocks, bonds in all kinds of sectors and the negative tail risk has fallen, he says. Policymakers have taken other actions before, but the ECBs latest action has lasted much longer than the other respites from market turmoil, and we do think it has staying power. But if something happens that would upset the market, tail risks could rise once again.....