"Fitch: European High Yield Is Principal Alternative As Loan Issuance Subsides
Image source: Fitch
26 Apr 2012 8:08 AM (EDT)
Link to Fitch Ratings' Report: European High Yield Chart Book April 2012
Fitch Ratings-London/Frankfurt-26 April 2012: Fitch Ratings has published the first edition of its new quarterly European High Yield (EHY) chart book, which illustrates recent trends in high yield bond issuance, maturities, default rates, fund flows and relative performance, as well as secondary market risk-adjusted pricing.
"Following a strong first quarter, European High Yield 2012 issuance is on pace to eclipse 2011 volumes if corporate M&A activity is able to meet strengthened investor risk appetite given recent flows into high yield funds," says Matthias Volkmer, Director in Fitch's European Leveraged Finance Group in Frankfurt. "However, investor sentiment is volatile and dependent on continuing low default rates and economic growth within the eurozone."
The return of investor risk appetite in Q112 was the clear driving force behind three consecutive months of steady net inflows totalling EUR1.4bn for EHY - considerably more positive than any of the quarterly trends observed in 2011. The flow of new money propelled total return performance for the asset class up to 11.9% for the quarter, outpacing emerging market sovereign debt (4.6%) and US high yield (5.2%). European issuers took advantage of the compression in spreads to place EUR23bn in new bonds, 71% higher in volume than new debt raised in Q111 and equivalent to 51% of the 2011 full year total. Limited EMEA leveraged loan issuance (EUR19.2bn) so far in 2012 further accelerates the shift towards EHY as a key component of the investable speculative grade debt market.
Key highlights of the chart book include:
- Pace of EHY new issuance in Q112 may help full-year volume eclipse 2011 level
- US high yield investor bid for European names has compensated for market volatility driven by eurozone risk aversion
- New issuance reflects the market's broad diversity across sectors and geographies.
- Risk appetite for lower-rated instruments ('B-'/'CCC') returned in Q112, although investors continue to favour stable 'BB' credit profiles as well as secured issuance
- EHY default rates remain low (1.8% for the trailing twelve months to end Q112) although appear poised to rise amid banking and growth concerns
- EHY has to continue to compete with other asset classes for investor attention
- Fund flows are a major factor behind the recent volatile performance of EHY
The new European high yield chart book is a complement to Fitch's in-depth research and topical commentary on the sector which can be found at www.fitchratings.com." (source: fitchratings.com)
Fitch's European High Yield Chart Book For April 2012
4/26/2012 04:36:00 PM
Fitch's April 2012 European High Yield Chart Book is available for free with a login. Below is the press release and charts of European high yield bond spreads by credit category and spread differentials from the Fitch report. From the spread differentials chart: "CCC vs BB spread rallied the most in Q112, coming within range of 2011 pre-summer levels, reflecting the return of risk appetite. Widening BBB vs BB spread since end March 2012 shows demand for safer assets in view of recent market volatility." I'm going to search for the U.S. high yield chart book.
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