Fitch's Inside Credit: Eurozone Banks' Sovereign Exposure and the U.S. Corporate Bond Market

The impact of possible limits on eurozone banks' exposure to sovereigns and shifting issuance patterns in the U.S. corporate bond market were top stories in this week's edition of Fitch Ratings' Inside Credit.

Eurozone banks would have to rebalance EUR1.1 trillion of eurozone sovereign exposure, mostly away from their home sovereign, if the ECB limited their sovereign exposures to the same limit that other exposures have, 25% of their capital, Fitch said.

'In theory, limits make prudential sense as they would help weaken the sovereign and bank nexus,' says Alan Adkins, Senior Director of Credit Policy. 'However, practical implementation could be more difficult, especially as the implied re-balancing is so large.'

The U.S. corporate bond market, now at $5.1 trillion and poised for another year of strong growth, was also top news this week.

'Strong and shifting issuance patterns continue to alter the size and contours of the U.S. corporate bond market' says Mariarosa Verde, Managing Director of Credit Market Research. 'This year a rebound in financial issuance, supporting consumer and commercial loan growth and refinancing needs, has boosted the ranks of investment grade bonds and helped to stabilize the market's rating mix.'

Other topics covered in this week's edition include:

--The impact of lower oil prices on Asian economies;

--Slowing private equity investments in the insurance industry;

--The impact of interest rate caps for Russian retail loans;

--European high-yield issuance to benefit from increased M&A;

--Petrobras' contracting scandal and its impact on construction companies;

--Belgium's Outlook revised to Negative;

--Prospects for the 50 largest leveraged corporate issuers in Latin America;

--Canada's budget deficits are credible but provinces will drive its deficit;

--Weak capital market revenues at the top five U.S. global trading banks.

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