Scenario 1: The eurozone will grow by 1.5 per cent over the next year.

Scenario 2: Parts of the European corporate bond market are tear-jerkingly deluded.

The chart below shows how BBB-rated non-financial investment grade European corporate debt has gone from pricing in a depression at the end of last year to becoming “modestly overvalued”, according to BNP Paribas.

The “modesty” present in this mispricing, we must add, is only relative. As Mehernosh Engineer of BNP Paribas observes:  “IG non-financial credit is overvalued, but so is everything else”.

Incidentally, yesterday’s ECB forecasts for eurozone economic growth:  -3.5 per cent in 2009, and 0.2 per cent in 2010.

Now, which scenario do you think the more likely?

Related links:
View of the Day: Eurozone growth to flatline – FT
Corporate credit bears – FT Alphaville

This entry was posted by Miles Johnson on Friday, September 4th, 2009 at 14:15 and is filed under Capital markets. Tagged with corporate bonds, eurozone. Edit this entry.