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Capital Markets

Corporate Bonds: Europe’s crisis makes US look good for now

European regulation could favour US assets; US growth prospects better than Europe’s

Last month’s decision by Germany’s regulators to impose a ban on short selling of sovereign credit default swaps and all stocks traded in Germany could benefit the US corporate bond markets, as investors move to a jurisdiction with more regulatory certainty and as growth prospects between the regions decouple.

"There is a risk connected with how Europe handles the current sovereign credit problem. There is a danger that the European markets could shut down if market participants continue to see uncoordinated government action," says Gaël de Boissard, co-head of global securities at Credit Suisse in London. "It is harder for investors to look at the European markets with confidence; and if that’s the case, they will go elsewhere."

No immunity

US markets have not been immune to the volatility created by the European sovereign debt crisis, and corporate bond issuance markets have been hit globally. Companies worldwide issued $47 billion of debt in May, down from $183 billion in April, which is the least since December 1999, according to data from Bloomberg. Meanwhile credit spreads widened the most since October 2008 when the banking crisis was at its height, according to Bank of America Merrill Lynch’s Global Broad Market indices.

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