Thomas Rentsch
Senior Portfolio Manager High Yield
Despite the threat of a trade war, zero growth in Germany and political uncertainty in Europe, the market for high yield corporate bonds is showing remarkable resilience. Risk premiums have been on a downward trend since mid-2022 and spreads for euro high yield bonds have reached their lowest level since mid-2017. But what does this mean for investors?
Downward trend in risk premiums
The risk premiums for high yield corporate bonds have fallen continuously since mid-2022. This is mainly due to stabilized inflation and the expected interest rate cuts by the European Central Bank (ECB). Investors still want to lock in yields before interest rates fall further, which is leading to continuous inflows into this asset class. In addition, the fundamentals of companies in the high yield category remain robust.
Spreads at their lowest level since 2017
At 212 basis points, risk premiums for euro high yield bonds without CCC are currently at their lowest level since November 2017¹. This is both a confirmation of market stability and an indication of investor confidence in the ability of companies to master the challenges of the current economic environment.
Source: Bloomberg (Bloomberg Euro HY ex Financials BB-B 3% Capped TR Index Hedged EUR, H23969EU Index; Bloomberg High Yield (Euro) ex Fin TR Index Unhedged EUR, I20672EU Index), as at 17.02.2025
Good news for investors
For investors who are already invested in high-yield corporate bonds, this is excellent news. They have enjoyed double-digit annualized returns since October 2022.
However, there is still a ray of hope for those who have missed out on this movement. The cost yield is still almost 4.4%, which is still well above the average of the last 20 years.²
Selective investment decisions required
In the current market situation, however, beta or benchmark investing is no longer in demand, but selective strategies are gaining in importance. Investors should now look for investment opportunities across the entire credit spectrum – across ratings, regions and currencies. This selective approach makes it possible to identify the best opportunities with controlled risk even in this environment.
HAGIM CIO-Series
Based on this investment philosophy, we have developed the Credit Income Opportunities product (CIO), which specifically addresses the needs of institutional fixed income investors. With our HAGIM CIO series, we bundle the best of all sub-segments in tailor-made portfolios. Our focus is on fundamental credit analysis and security selection in order to identify the best issuers and issues for our clients.
It enables differentiated selection and targeted risk management to maximize returns while minimizing potential risks in an uncertain market environment. With our investment philosophy based on intensive fundamental credit analysis, we at HAGIM believe that we are ideally equipped to meet the challenges of the current market environment and the individual investment requirements of institutional clients and are ready to support you in constructing investment solutions that meet your needs.
Source: Bloomberg (Bloomberg Euro HY ex Financials BB-B 3% Capped TR Index Hedged EUR, H23969EU Index; Bloomberg High Yield (Euro) ex Fin TR Index Unhedged EUR, I20672EU Index)
Risiken
Price losses due to increases in yields and/or higher risk premiums are possible. A total loss cannot be ruled out.
Past performance is not an indication of future results, nor can future performance be guaranteed.
Disclaimer
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(Wertpapierhandelsgesetz) is provided for information purposes only and should not be construed
as personal investment advice or a recommendation or solicitation to buy, sell or hold
any financial instrument or to adopt any investment strategy. The opinions and statements
contained in this document reflect the current assessment on the date of publication. This information does not constitute a complete analysis of all material facts relating to any country,
region or market. This is not to be considered as financial analysis.
If statements are made about market developments, returns, price gains or other asset
growth as well as risk ratios, these merely constitute forecasts for whose occurrence we assume
no liability. Past performance, simulations or forecasts in particular are not a reliable
indicator of future performance. Assets can go up as well as down. All information has been
carefully compiled; partly with recourse to information from third parties.
Individual details may prove to be no longer or no longer fully accurate, in particular as a
result of the passage of time, changes in the law, current developments on the markets, possibly
at short notice, and may change at any time without prior notice. Therefore, no guarantee
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