Europe-Over-US No Longer Winning Credit Trade After French Chaos

Political divisions rocking France threaten a successful credit trade: buying European corporate bonds over their US counterparts.

Since French President Emmanuel Macron decided to call snap elections earlier this month, the trade has spun into reverse. Deutsche Bank AG strategists downgraded their outlook relative to the US and money managers including Muzinich & Co. are cashing out.

“We’re taking profit,” said Ian Horn, co-lead portfolio manager at Muzinich, who had been overweight Europe. “Clearly that political risk is there and spreads aren’t as attractive on a relative basis.”

Before the crisis erupted, credit in Europe had edged out ...