Companies in Europe are perceived to be the safest compared with their U.S. counterparts in 17 months as risks of a currency breakup diminish while politicians in the world’s biggest economy struggle to cut the nation’s deficit.
The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies from Spain’s Telefonica SA to engine-maker Rolls Royce Plc exceeds the U.S. equivalent by the least since July 2011, with the gap narrowing to 20 basis points yesterday. Their bonds are also gaining, with relative yields dropping below their U.S. peers for the first time since June of last year.
Europe is making a comeback in the debt markets as European Central Bank President Mario Draghi pledges to do whatever’s necessary to protect the euro, with the government bonds of Greece, Portugal, Ireland, Italy and Spain generating the biggest returns since June of 26 sovereign markets tracked by Bloomberg/EFFAS indexes. At the same time, lawmakers in the U.S. are bickering over how to avert more than $600 billion in mandated spending cuts and tax increases.
As I said: I am not really worried about Europe, I am worried about others who think they are the top of the hill.