Go long German firms versus iTraxx Europe, says Goldman

In its latest ‘Credit Line’ research, Goldman Sachs says that the recent lack of differentiation between German corporate names and the rest of core Europe offers a good entry point to get long German firms versus the iTraxx Europe index. Strategists say that German firms remain much better positioned compared to the broader European universe.

First, German macro indicators have strengthened considerably. Second, German companies are more exposed to the global industrial cycle and thus relatively less exposed to developments in the euro-zone. Third, German companies are also better positioned to benefit from the recent depreciation of the euro. Goldman does not see these considerations being priced in relative credit default swap spreads, and therefore recommends getting long a basket of German names against iTraxx main (in a 1 to 1.5 notional ratio).