The European market ofHigh Yield, Including the Short-Term one, it continues to offer high and interesting levels of performance (higher than 6%), with high tie and a relatively low duration (less than three years). This means that, in case of a strong increase in government rates, performance should be more stable than other fixed income asset class.
Underlines it Roman Gaiser, Head of Fixed income and high yield emea dI Columbia Threadneedle Investments SPiegando that although the credit spreads are lower than their long -term media, the technical data have provided market support, and we foresee continues to do so. Investors are still looking for yields, which is making large resources flow into this asset class (approximately 2.1 billion euros from the beginning of the year). The recent and remarkable increase in the primary market (47 billion euros since the beginning of the year) is another positive factor, since it offers new investment opportunities through new broadcasters. Any attempt to correction has been promptly held back by the strong question, as we saw in the second part of April, after the announcement of the duties by President Trump.
Overall, companies have solid budgets and an improvement in financial leverage levels, which have reduced themselves in recent years. This favored the narrowing of credit spreads. The Fall of the monetary market rates And the expectation of at least another cut by the European Central Bank should continue to support corporate obligations, in a context in which investors try to invest their liquidity.
Trainant forces
The increase in the interest rate differential between Europe and the United States of America He is supporting the attraction of European High Yield. THETo cover in euros of the active ingredients called in dollars, it has become very expensive, which makes the securities called in the most interesting euros. For this reason we are witnessing a renewed interest from non -European investors. In our opinion, the US dollar does not have a great influence on the European HY market. Certainuncertainty in the United States Linked to the current administration pushes foreign investors to turn to Europe for new investments and, in the long term, the level of the euro/dollar gearbox could affect competitiveness if the single currency should be too appreciated. However, at the moment this is not the case: the element on which attention is focused on the immediate one is the growing differential of interest rates.
Undersplash and overweight
The uncertainty triggered by the announcements of Trump’s duties and the consequent pull and spring – explains the expert – They created a lot of instability. PEr companies is not easy to have a clear vision of potential impacts on their business. Consequently, in particular in global sectors such as the automotive and chemical industry, the market has been very volatile in recent months. The fear is that growth, turnover and margins can be affected. In our strategy dedicated to European Hy we took the opportunity of this volatility to increase exposure to specific securities, in particular those with a low financial leverage and a good ability to resist any impacts. In general, the sectors in which we have an overweight (at the end of May) are the most oriented to the internal market and presumably less exposed, such as leisure, utilities, properties and healthcare.
Among the sectors rInspecto to which we adopt a more cautious approach and that we undergo there are those of retail sales, energy, transport and capital goods. Often the companies operating in these segments have financial statements to a certain extent more weak or have to face fierce competition, as in the case of the retail sale of food, which puts pressure on the margins.
Looking over 2025
Considering the probability of further cuts of rates by the ECB, The inflation under control and the restricted level of spreads, we believe that the performance will approach the performance, that is, around 4-5% in the next 12 months. This provided that a strong correction does not occur in the risk markets globally. The performance from one to three years, which currently ranks in the 5%band, has returned to the levels of about five years ago.
From Covid to the crisis del dear-life, The High Yield market has seen more “Rising Stars” (Companies whose credit rating has been revised upwards to become an investment grade) that “Fallen Angels” (previously evaluated investment grade bonds that have been downgraded to the status of Junk Bond). However, since 2023 this trend has reversed and the market now provides for Fallen Angels that Rising Stars. In fact, by analyzing the credit market, rating, trends and corporate operations, it emerges that the risk of “Fallen Angels” could amount to up to 27 billion euros. An example is Warner Bros. Discovery, recently became a high yield bond (has some bonds called in euros, but most of the debt is in US dollars).
On the other hand, we have also witnessed the birth of some “Rising Stars” (and we plan that others will follow), including the Italian company of Digital Payments Nexi, a solid company with strong and stable cash flows. Therefore, the amount of Rising Stars among the issuers could increase if the economic perspectives will continue to remain stable.
Conclusions
The duties remain to date the dominant theme on the markets. THE’Uncertainty has undoubtedly increased and some broadcasters have withdrawn their perspective indications due to the continuous unknowns, especially in the automotive sector. However, we must not forget that in Europe there are at least two remarkable support factors: the lowest interest rates and the German spending package for defense and infrastructure, which should have a positive impact on the stabilization of European growth, although probably moderate. In addition, many companies boast solid budgets, good liquidity, reduced financial leverage levels and efficient operations; Therefore, they should be able to face the turbulence. In eFfetti have already proven to be successfully overcome multiple obstacles in recent years. We expect them to continue to do it.
