Exposure to energy imports is separating winners from losers in the global credit market, with Europe turning to a major pain point as the Iran war shows few signs of ending soon. Risk premiums on high-grade euro-denominated corporate bonds have climbed 13 basis points, almost triple the widening seen on their US counterparts since the start of the conflict. Investors have been buying more protect...
Exposure to energy imports is separating winners from losers in the global credit market, with Europe turning to a major pain point as the Iran war shows few signs of ending soon. Risk premiums on high-grade euro-denominated corporate bonds have climbed 13 basis points, almost triple the widening seen on their US counterparts since the start of the conflict. Investors have been buying more protection against default in European derivatives markets than in the US. And when Goldman Sachs Group Inc. forecast more credit spread widening last week, they told investors it will be more significant in Europe. European economies — and companies — are looking increasingly vulnerable to disruptions in the flow of oil and other energy products as the war drags on, given the region’s higher dependency on imports than the US. For BlackRock Inc. , which can track investor behavior in real time through its exchange-traded funds, there seems to be a mismatch in buyer sentiment. “We have seen slightly more derisking coming from European investors versus when I look at bond ETF flows in the US,” said Vasiliki Pachatouridi , head of iShares fixed income product strategy EMEA at BlackRock. “The sentiment in Europe has been impacted more,” she points out, citing the region’s proximity to the conflict, its energy dependence, and the impact on growth and inflation. The firm has seen some outflows in Europe from euro high-yield and emerging market debt, she added. The US has been a net exporter of energy since 2019 thanks to fracking, which has allowed more crude oil and natural gas production, reversing more than half a century of reliance on imports. By contrast, there’s been a steady increase in energy import dependency among EU nations over the past 30 years or so, according to a study by Federal Reserve staff. The mismatch is particularly evident in credit-default swap indexes, the most liquid instruments in the global credit market. Investors bought $35 billion of protection on the iT...