May 2022 Commentary
Sovereign debt led the EUR-denominated debt losses in May, with inflation amid the energy crisis being heightened by the ongoing war in Ukraine.
Month-to-date returns on European debt were in negative territory across all the eurozone countries (see Exhibit 2). Debt issued by the Baltic states and Greece has seen the strongest declines not only over May, but over the past 12 months. In the iBoxx € Corporates Index, Real Estate and Utilities had the worst returns last month.
The yield on the iBoxx € Overall Index, which incorporates both sovereign and corporate debt, rose about 25 bps, while duration fell by 0.13 to 6.98. Yields on corporate debt saw higher increases than those for sovereigns.
Annual yield on the iBoxx € Corporates Index rose by 30 bps to 2.69%, with duration slipping only 0.06. Expectations that the European Central Bank will taper its bond buying starting in the third quarter have been pushing yields higher, as this would withdraw an important buyer from this market.
