HY Euro’s performance in recent months has been remarkable. The HY Euro Index tightened by 157bp in 2016 and 48bp since the start of 2017. So why is it still a good idea to take a position on HY Euro?
- The technical factors are supportive.
- Issuers’ fundamentals remain favourable to bond investors. The default rate in the high-yield segment has fallen back in recent years to a historic low of 2%. We’re at the centre of a virtuous circle: 1) strong demand for credit is helping issuers easily refinance their debt and extend their debt’s average maturity, 2) historically low borrowing rates are also substantially reducing borrowing costs.
- In a low-rate environment, HY Euro offers attractive carry strategies.