Investors underweight peripheral covered bonds, but squeezes likely
Covered bond investors have reduced their exposure to peripheral markets according to analysts at Commerzbank research. Despite this, peripheral and higher yielding covered bonds have continued to outperform and could easily remain susceptible to squeezes, traders warn. The technically squeezed status quo may not change until the second half of 2018, they added.
The iBoxx covered bond index is trading close to its historic tightest spread levels. “The trend of positive sentiment in the secondary market continued last week, with the overall iBoxx hitting a new post-CBPP3 low,” said ABN analyst Joost Beaumont, in a note to clients on Monday.
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