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 £500m 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.