European corporate hybrid bonds have performed disastrously of late. They heavily underperformed the market during June. The spread widening varied anywhere between 30 and 100 basis points. For instance, Bayer’s hybrid security moved out to 320bp over swaps from 245p in three weeks. The scale of the demise is even more marked if the full six months of the year is taken into account. In January this deal was quoted at 175bp.
During the past two months a risk premium has returned to the market.
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