European banking credit: financially sound?

We review the European credit universe and ask why is it that financial credit spreads are so tight relative to non-financials?

No investor can study the credit universe without paying close attention to the financial sector – and more specifically – banks. While their importance as an overall percentage of the European corporate bond index has fluctuated over the years, banks continue to be the largest sector in the index. Standing at 30% currently[1], the banking sector is still some way off its 2010 peak of around 45% as other constituents of the index have grown, most notably real estate and healthcare. Potential reasons behind an increase in these sector weightings are discussed in an earlier blog.