Headwinds continue to obscure Europe's improving economic backdrop

In Europe, the European Central Bank (ECB) remains the dominant driver for yields. This year, it has been willing to extend the pace of quantitative easing (QE), add other instruments to the eligible pool, and signal new stimulus should it be warranted.

But we expect its willingness to take further action will be tempered over the coming months as headline euro area inflation starts to rise closer to 1%.  The risks that led the ECB to extend QE back in March have now abated, commodity prices have rebounded modestly while the Federal Reserve is signaling a rate rise and global financial conditions have eased.  Europe: The challenge of finding the best prospects in a diverging union European fixed income has benefitted from a combination of central bank intervention, low global growth, and a low inflationary environment. The bond bu...