Thomas Rentsch
Senior Portfolio Manager High Yield
Germany’s shift away from austerity—for example, through a 500-billion-euro infrastructure package and increased defense spending—has dampened hopes for falling interest rates. At the same time, Trump’s “Liberation Day” has shown just how quickly low risk premiums can come to an end.
This has led to a significant increase in new issuance activity for European high-yield bonds. However, the focus remains on bonds with medium maturities. From an investor’s perspective, this is a positive development, as it simultaneously reduces issuers’ default risk and aligns well with investors’ preferences for shorter- or medium-term investments.
European High-Yield Bonds: More New Issuances Despite Interest Rate Risks
In late February, we discussed how issuers in the European high-yield market were currently refraining from issuing long-term bonds [1]. The elevated interest rates at that time, coupled with expectations of falling rates, prompted many companies to avoid locking themselves into high interest rates for the long term.
However, this hope has cooled somewhat since early March. A key trigger for this shift in sentiment is Germany’s departure from its austerity policy. With the passage of a 500-billion-euro infrastructure package and a structural increase in defense spending, policymakers are signaling a willingness to take on new debt—a move that could potentially lead to rising interest rates. At the same time, Donald Trump, with his “Liberation Day” and the ensuing market turbulence, has shown just how quickly the era of low risk premiums can come to an end.
These developments make waiting for more attractive refinancing costs increasingly risky. It is therefore welcome news that issuers are increasingly actively seeking refinancing. As a result, new issuance activity has increased noticeably. This was interrupted only briefly by the volatility following “Liberation Day.” However, companies continue to focus on medium-term maturities (mostly 5 years, though some are 6- and 7-year maturities) in order to maintain the flexibility to refinance at more favorable terms in two or three years.
For investors, in turn, these new issuances offer the opportunity to acquire bonds with attractive coupons and limited duration. At the same time, this increase in refinancing activity is welcome from the investors’ perspective, as a reduction in short-term maturities significantly lowers the short- and medium-term default risk.
New Issuances in 2025 – Volume and Remaining Maturity by Calendar Week
Source: Bloomberg Euro High Yield ex Financials BB-B 3% Capped Total Return Index (H23969EU Index), only bonds included in the index (excluding financial bonds and floating-rate bonds); for hybrid bonds, the first coupon reset date was used as the maturity date; January 1, 2025–June 20, 2025
Source: Bloomberg (Bloomberg Euro High Yield ex Financials BB-B 3% Capped Total Return Index, H23969EU Index)
“New issuance activity in the European high-yield bond market has increased significantly since March of this year, with the focus remaining on medium-term maturities, which are preferred by investors.”
– Thomas Rentsch
Senior Portfolio Manager – High Yield
[1] https://ha-gim.com/praeferenz-fuer-kurz-und-mittelfristige-finanzierungen-wird-die-wette-der-unternehmen-auf-niedrige-renditen-aufgehen/
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