Thoughts on European High Yield
Richard Phelan, head of European Credit Research at Deutsche Bank, told CNBC Monday that in European high yield, "Issuance has been strong because the market is relatively young compared to its US counterpart, it’s around just one fifth or a quarter of its comparable US market." That means that companies want to issue bonds and tap markets as an alternative capital source to bank debt.
Default rates are at 2% right now, down from double digits at the height of the recession. And while you have to anticipate some reversion to the mean, Rich thinks default rates will continue to stay low. Given the ongoing problems in the periphery, European corporate credit may be a better bet for fixed-income investors than sovereign credit, something I will be discussing on the CBC’s Lang & O’Leary program tonight at 7PM in Canada.
Yields are incredibly low in the investment grade space. So that has put pressure on managers to get some yield pick up. Could European high yield be it, not just for European fund managers but for Americans as well?