Within our spread product allocation we favour Eurozone peripheral treasuries (EPT). Next to EPT we have small overweight positions in European ABS and Global High Yield.

## Evolution of spread levels since 2007


## DM credit spreads trade below pre-taper levels

After the “risk off” period that we have seen since the end of January due to increasing emerging market (EM) turmoil and the escalation of tensions in Ukraine more recently, credit markets have returned to the mood they were in during the second half of last year. As a result, credit spreads in developed markets (DM), both on High Yield (HY) and Investment Grade credits (IGC), have tightened. By now, DM credit spreads comfortably trade below the levels seen prior to the increase in taper fears in May 2013. EM debt spreads on the contrary have failed to fully recover from the widening that occurred after Ben Bernanke’s infamous taper talk.

## Uncertainty is however still quite high

Uncertainty about the market outlook is however still relatively high. The tense situation in countries like Ukraine, Venezuela, Turkey, the increased systemic and economic risk in China, the distortions in economic data due to adverse weather conditions (US) or seasonality (Chinese New Year) all make investors hesitant to which scenario to position for.  

The result is a combination of a moderate risk-off stance – which is reflected by the decline in DM government bond yields – and tentative flows towards DM equity markets. As a category between government bonds and equities, DM credits are also sought after. EM bonds and equities on the other hand continue to face outflows (although EMD just had a week with inflow), as the region is obviously seen as the most risky place to be.