The European high-yield market got off to a good start in 2013 on the back of the positive momentum it had built up in the last quarter of 2012.
In January, new issuance from corporates in developed European markets climbed 80% compared with the previous year, according to rating agency Fitch. This was despite the fact that 2012 was a record year in which non-financial companies from developed markets issued €65bn in new bonds.
Fitch attributed the growth in high yield to investors feeling reassured by the European Central Bank’s ‘outright monetary transactions’ sovereign bond-buying scheme, which was announced in August 2012.
The dominance of higher quality, BB-rated ‘fallen angels’ in European high yield may dampen any significant rise in defaults, Fitch predicted. Fallen angels are bonds that were rated investment grade at the time of issuance, but have since fallen into high-yield territory due to a credit rating downgrade.
The default rate for European high-yield bonds is currently standing at 0.7% by volume for 2012.
According to Fitch, ongoing eurozone growth weakness could bolster the asset class as more bonds fall into speculative grade. “With few real-yield opportunities for investors and a lack of financing options to satisfy the volume and duration requirements of issuers – notably those in the constrained European leveraged loan market – European high yield is poised for further growth during the year,” the rating agency said.
Sally Percy is editor of The Treasurer