iBoxx GBP Corporates Index data provided by Markit Group Ltd
i) GBP Corporate Bond Index Spreads
The sterling bond market trades (and always has) at a premium to the euro one for several reasons. It is much smaller, it is even more illiquid, it is controlled by a few very large players and the information ratio is much poorer. Issue sizes are smaller too, and the sterling market is a longer duration one (7.5 years versus 5 years). Amid the early 2016 oil/commodity sell-off and the resulting equity weakness and volatility, we could and should have expected the sterling market to underperform (it did, slightly), but the Brexit debate has added a little fuel to that.
After a stellar year for returns in 2016, we look for more normal markets in 2017. Still, the BoE has been lifting almost £300m of IG non-financial debt per week since late September 2016 as part of a £10bn effort designed to take 18-months to complete. They will likely complete it by the middle of 2017, but the bank has supported the market such that volatility has been very low. Spreads have been stable through volatility impacting equities and Gilts but returns have been very good in Q1/2017 as Gilts have rallied.