iBoxx Monthly EUR 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.
May 2022 Month-End Rebalance
The iBoxx € Overall Index had a sizable rebalance at the end of May, with 105 new issuances coming in and 64 deletions. Similar to the prior month, a number of larger sovereign bond exits outweighed new entrants, resulting in the iBoxx € Overall Index seeing net deletion of more than EUR 50.5 billion of the notional value. Although new corporate debt issuance is currently subdued, corporate insertions added net flows of almost EUR 13 billion in notional amount, with Financials dominating the new additions for a second month. The second-largest addition came from Utilities, which had a poor performance last month. The new bonds in this category came from France's Suez SACA, Dutch TenneT Holding and Italy's Hera SpA.