Content area
Full Text
The more optimistic UK growth outlook has been partly driven by expectations that the UK will emerge from lockdown before its European peers due to the higher vaccine rollout. This view was somewhat underscored on Tuesday following February’s 0.4% rise in UK GDP and, more importantly, January’s upward GDP revision of a full percentage point.
The economy is still 7.8% smaller than February 2020 but after it emerged that 50% of the population had been vaccinated, the International Monetary Fund upgraded its UK growth forecast to 5.3% this year and expects the UK to reach pre-pandemic GDP levels late next year.
Covered bonds have not been immune from the Covid crisis and subsequent credit rally with the iBoxx euro UK index hitting a peak of 40bp in April 2020 before tightening to 9bp where it presently stands.
This is 5bp wider than the overall iBoxx euro index and the iBoxx Canadian euro index. UK covered bonds “have a better spread potential,” said DZ Bank analyst Verena Kaiser, who recommended being overweight the market.
This view was supported by the UK covered bond market’s strong credit profile. Almost all...