+1 Added to my documents.
Please be aware your selection is temporary depending on your cookies policy.
Remove this selection here

Euro HY: an essential asset class in a low-rate environment


The essential

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.


May 2017


Mai 2017


The Article


AINOUZ Valentine , Deputy Head of Developed Market Strategy Research
COHEN Marina , Head of Euro HY
Send by e-mail
Euro HY: an essential asset class in a low-rate environment
Was this article helpful?YES
Thank you for your participation.
0 user(s) have answered Yes.
Related articles
2019.12 - Slider Cross Asset
2019.12 - Slider Cross Asset
06.12.2019 - Monthly Cross Asset

Corporate fundamentals are at the centre of the game

Over the last decade, easy financial conditions encouraged an increase in sovereign and corporate debt. Indeed, the leverage of American companies has reached record high levels and US corporate debt has been used for financial risk-taking to fund corporate payments to investors, as well as for mergers and acquisitions. At the opposite, the leverage of European companies has remained at low levels as European companies have remained more cautious over this cycle. In 2019, we have evolved in a new regime: the global economy has entered a synchronised slowdown and major central banks have returned to an easing stance. What are the risks for companies in this new context? We are following closely: The downgrade risk in the US Investment Grade universe. Net leverage for US issuers have resumed their upward trajectory in recent months. In 2020: (1) companies to make a trade-off between maintaining share buy backs and the stability or their debt (2) the downgrade risk to increase among firms facing increase pressure on profits. The default rate risk for low-quality high-yield bonds. Sluggish earning growth poses the biggest threat for companies to pay interest on their debt despite the low cost of financing. Indeed, at this stage of the cycle, we think that interest coverage is more closely related to earnings than to its interest expense: interest coverage could be quickly eroded by a hit to earnings. A selective approach is required in the low-rated Euro and US High Yield segments.

Valentine AINOUZ

Deputy Head of Developed Market Strategy Research