BlackRock: European corporate bond spreads expected to remain range-bound, high yields sufficient to hedge AI concerns.

BlackRock expects that this year, the European credit spread will remain volatile, and the attractive yield of fixed income assets will likely offset concerns in the market about the potential impact of artificial intelligence (AI). In a first-quarter fixed income outlook released on Tuesday, BlackRock stated that although corporate bond yield spreads are currently at their narrowest level in years, the actual yield is still at a ten-year high, with corporate fundamentals continuing to improve - companies are actively deleveraging, improving operational efficiency, and profitability. James Turner, Global Head of Fixed Income for Europe, the Middle East, and Africa (EMEA) at BlackRock, said in an interview: "To be honest, it's difficult to achieve significant capital appreciation at current spread levels. But as long as you can securely lock in coupon income and compound over the long term, you can achieve decent returns, especially at the current yield levels." BlackRock pointed out that the average yield of European investment-grade corporate bonds is around 3%, while inflation expectations are stable below the European Central Bank's target level of 2%, resulting in the highest real yield in over a decade. This advantage continues to attract funds into this asset class, with stable demand from institutional and retail investors providing support to the market; meanwhile, investors still hold a large amount of cash, providing room for further allocation to credit bonds. Turner believes that the economic growth prospects in Europe are "not dazzling but remain positive," and the regional interest rate environment is tending towards stability. He said: "This stable macro environment is highly favorable for fixed income investors." However, BlackRock also warned that there will be differentiation in market performance: some industries and issuers may struggle to adapt to the widespread use of AI technology, leading to winners and losers within and across industries. Turner stated: "Investors need to conduct more in-depth research to uncover the best sources of income." He suggested that, in addition to investment-grade bonds, investors could also focus on high-yield bonds, emerging market debt, and asset-backed securities, "to gain additional yield increment."