Despite an overall positive environment for European high-yield bonds, investors in CCC-rated bonds have had little to celebrate this year. Several major issuers in the high-yield sector were downgraded to CCC. However, after a weak start to 2024, the segment appears to have found a bottom by the end of April.
Major Downgrades
The small CCC segment of the European high-yield market welcomed several major issuers into its ranks in 2024, including Altice France (senior bonds), Atos, and Grifols (unsecured bonds). Altice France, in particular, now accounts for nearly 20% of the CCC sub-index following its announcement that it would involve bond investors in the company’s debt reduction.
Weak Performance
However, this growth proved to be more of a curse than a blessing, as Atos in particular temporarily continued its downward trend following its downgrade to CCC (-25% in March). Additionally, March was weighed down by very weak performance from the subordinated bonds of Altice France (-41%) and Altice International (-18%).
The weakest performance in 2024, however, was posted by the Thames Water holding company bond, which recorded a return of -76% during its time in the index.
Since the beginning of the year, the CCC segment has thus posted a negative return of -0.9%, while BB bonds are clearly positive at +2.0% and B bonds at +3.2%.
Euro High Yield 2024 Performance
Sentiment Improves
The reason for this shift in sentiment is a combination of a robust global economy, ongoing hopes for interest rate cuts, and increasing activity in the M&A market. The last point, in particular, is important for struggling companies, as a higher corporate valuation should mitigate losses for bond investors in the event of a restructuring.
With a risk premium of 865 basis points and a yield of 11.7%, CCC bonds still offer relatively high yields, so the rally could well continue.¹
Conclusion – As Always, Be Cautious When Buying High-Yield Bonds!
However, in addition to an increased risk of default and loss, the CCC segment also offers the potential for high price gains if a company can avoid restructuring and the bonds are repaid in full.
For this reason, it is advisable to consult with a recognized fixed-income credit specialist when investing in high-yield bonds in general and CCC bonds in particular. At HAGIM, we consider ourselves well-equipped to handle such challenges thanks to our investment philosophy, which is based on in-depth fundamental credit analysis.
Investments
Risks
Price losses due to increases in yields and/or higher risk premiums are possible. A total loss cannot be ruled out either. Past performance is not indicative of future results, nor can future performance be guaranteed.
Disclaimer
This marketing communication, as defined by the Securities Trading Act, is provided solely for informational purposes and should not be construed as personal investment advice, a recommendation, or a solicitation to buy, sell, or hold a financial instrument, or to adopt an investment strategy.
The opinions and statements contained in this document reflect the current assessment as of the date of publication. The information provided does not constitute a complete analysis of all material facts relating to a country, region, or market.
Any statements regarding market developments, returns, price gains, or other capital appreciation, as well as risk metrics, are merely forecasts for which we assume no liability. In particular, past performance, simulations, or forecasts are not a reliable indicator of future performance. Asset values may rise or fall.
All information has been carefully compiled, in some cases based on information from third parties. Individual pieces of information may, in particular due to the passage of time, changes in the law, or current market developments, prove to be no longer accurate—or no longer fully accurate—even at short notice, and may change at any time without prior notice.
Therefore, no warranty is provided as to the accuracy, completeness, or timeliness of any information. The information is based on our assessment of the current legal and tax situation. To the extent that tax or legal matters are addressed, the recipient should discuss these with their tax advisor or attorney.
Investments in financial instruments involve both opportunities and risks. HAGIM’s policy on handling conflicts of interest is published online at www.ha-gim.com/rechtliche-hinweiserechtliche-hinweise.
The information contained herein is intended solely for professional clients or eligible counterparties. This information document is not intended for U.S. citizens or persons permanently residing in the United States, nor may it be distributed in the United States.