August 18, 2018

European high-yield bond issuance records EUR60.3bn in 2012

According to Fitch Ratings, European high-yield bond issuance hit a record EUR60.3bn in 2012, up 47% over last year. Strong total returns and improving risk-adjusted pricing stoked demand while record low coupons for some issuers ensured supply. A benign default rate environment benefitted risk-adjusted pricing in European high-yield (EHY) after summer volatility, despite the record low yields. Defaults fell to 1.2% at the end of the third quarter, well below the historic average of 4.7%, according to the Fitch trailing 12- month HY Default Index. Total return performance was the highest since 2009 and has been a major draw for investors since the start of 2012. This is reflected in record net new fund inflows of EUR7bn, according to data from Lipper. De-leveraging in the banking system also continues to force borrowers away from the loan market and towards bonds. EHY bonds generated total returns of 26.2% according to the Bank of America Merrill Lynch Euro High Yield index, 1.7 times the rate for US high yield bonds and higher than the 23.8% recorded for emerging market bonds. While returns in 2013 may not match those for 2012, outstanding high yield bonds benefit from relatively strong credit quality, typically rated B+ and higher. Consequently, while the default rate may rise, it is likely to remain below the historical average.
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