An improving global economy, Ukraine crisis apparently de-escalating, persistently dovish monetary policy - what's not to like for long credit investors?

Spreads are rallying after a relatively docile period, and it is not hard to see why. The three main economic blocs - the US, China and Europe - are all showing clear signs that growth is accelerating. US non-farm payrolls exceeded expectations last Friday, and today's weekly jobless claims provided further evidence of a strengthening labour market. ISM surveys point towards a buoyant second-quarter.

China's economy is considered by many to be a likely catalyst for a global downturn, but better than expected trade data put those concerns into the background, at least for now. Data distortions due to fraudulent invoices - since clamped down on the by the government - make year-on-year comparisons difficult, but export data appeared to show a clear improvement.

Europe's growth rate lags behind the US and China, and that is unlikely to change for the foreseeable future. But even here there are reasons to be cheerful. Markit PMIs showed that the eurozone economy continues to pick up, though the painfully high unemployment rates in peripheral countries suggest that the authorities should be doing more to stimulate growth. The UK's robust but imbalanced recovery continues apace.

So the economic backdrop is favourable for credit. Geopolitical risk always has the capability to derail rallies, as we have seen on numerous occasions in the past, but the conflagration in the Ukraine hasn't really troubled global markets. A full-blown civil war might stir investors, and at the time of writing separatists in the eastern part of the country were pressing ahead with an independence referendum. Russian president Vladimir Putin has taken a more diplomatic line today, but it is still difficult to see the endgame here.

If Ukraine is having little impact, the same can't be said of the world's central banks. US Federal Reserve Chairwoman Janet Yellen's dovish testimony to the Senate boosted sentiment. This was supported by ECB President Mario Draghi's hint that policy easing may finally come in June. QE still seems some way off, but credit investors remain hopeful that it will be implemented.

Yellen's concurrent warning about the chase for yield was ignored by the markets, and investors are clearly enjoying the clement conditions. Issuance, particularly in sub-investment grade, remains at stratospheric levels, and the demand for higher yields creates the perfect environment to sell debt. The recent Numericable/Altice jumbo deal was a prime example. Investors can either go down the ratings scale or increase duration to gain higher returns, with low default rates providing another reason to go long credit.

The Markit iTraxx Europe is now trading at 66bps, just 2bps wider than the Markit CDX.NA.IG. The European index hasn't traded tighter than its North American counterpart since August 2010, and it could cross this threshold next week if the rally continues. The systemic risk from sovereign debt has been neutered by the ECB, and the prospect of QE should give additional impetus to European credit.

If the macro picture is calm, then credit investors may choose to focus on event risk. Pfizer's bid to takeover British rival Astrazeneca has resulted in the CDS spreads of the two companies converging (both around 30bps), suggesting that the market is confident the deal could be completed. Bondholders in Astrazeneca would benefit from a combination, as the US firm has a strong AA credit profile. Indeed, single A-rated Astrazeneca is now trading like a AA credit, according to Markit implied ratings.

But a successful deal is by no means certain, as Astrazeneca has mounted a robust defence and the transatlantic takeover approach has attracted political scrutiny in the UK. The CDS basis between the two firms will no doubt change over the next few weeks as the market tries to digest the probability that the deal will be completed.

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