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“The European Central Bank’s gradual paring back of stimulus will lead to tighter financing conditions and a modestly paced increase in borrowing costs, which will be manageable for most euro area debt issuers,”  Moody’s Investors Service said in a recently published report titled ‘Moody’s: End of ECB QE and gradual rate rises will be manageable for most euro area debt issuers’

Key takeaways

  • While manageable for most issuers, rising rates will affect some more than others at different horizons, mostly depending on the terms of the interest payments on their outstanding debt as well as on the gap between the interest paid on maturing debt and new debt.
  • While the negative impact of higher rates on non-financial corporates will depend on their creditworthiness and funding profiles, most rated companies can withstand rising rates, as steady growth in the euro area will support their credit quality.
  • Rising yields are credit positive for insurers, but investment returns will continue to decline in the short term.