European High Yield: Still Home for Opportunities

Darrin Smith
Portfolio Manager
Principal Global Fixed Income

Despite the macroeconomic challenges, including the recent Greek elections and the crisis in Ukraine, the European high yield market has rallied thus far in 2015. In fact, the Merrill Lynch Euro High Yield Index has returned 1.4% YTD as of 9 February, with spreads tightening by 10 basis points (bps). But, we are nowhere near the spread tightening that we witnessed in June. The current spread is 393 bps, but this is still significantly wider than the spread tights six months ago. If we break the European high yield market down even further, BB-rated bonds have retraced a large part of the spread widening, but B-rated bonds are still over 100 bps wide, compared to the tights last June.

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