Institutions put European high yield in the spotlight

Survey1Valuations and default rates are reasons why many institutional investors find European high yield bonds attractive, a survey indicates.

A little over half of 103 institutions expected allocations to European high yield debt to increase over the next three years.

Just over a quarter of the institutions rated Eurozone valuations as strong or very strong, the survey from NN Investment Partners shows, while the US was cited by 22%, the UK and Japan by 18% each, and Asia ex-Japan by 16% of the investors.

Valuations were the most attractive attribute of European high yield bonds overall and justified the additional risk, according to survey respondents. Falling default rates in Europe were also supportive.

Sjors Haverkamp, head of European high yield at NN Investment Partners, says: “Credit spreads widened from May after risk aversion increased. However, they are still above what would be considered normal in the current cycle so some value may therefore appear in spread products.”

Haverkamp adds that investors will want to see fundamentals improve, too, and that European Central Bank monetary policy will “no doubt be supportive”.

However, not all investors agreed that European high yield would be bought into. Just under 20% said they expected allocations to European high yield debt by institutions to decrease.

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