Yesterday we saw Inter Milan issue the first football related high yield bond since we saw Manchester United tap the market back in January 2010. Putting aside the natural tribalism of 2 of my esteemed colleagues (both Italian, both ardent AC Milan supporters), we decided not to invest in the €300m 4.875% 2022 bond.
In terms of fundamentals, legal claim, and relative value, the bond stacks up f… Read the article
Guest contributor – Saul Casadio (Credit Analyst, M&G Investments)
While European High Yield has delivered a robust performance over the last two years, returning on average 4.9% per year, one part of the index has significantly lagged. Over the same period bonds issued by construction companies have returned an average annual return of -18.4%. The chart below shows that, out of seven issuers i… Read the article
As is usually the case on 1 May, there was a plethora of articles and commentary on the “sell in May and go away” effect. If you are unfamiliar with this highly sophisticated trading strategy, it involves closing out any equity exposure you may have on 30 April and re-investing on 1 November. Historically, U.S. equities have underperformed in the six-month period commencing May and ending in Oc… Read the article
2013 saw a record year for new issue volumes in the European high yield market. A total of $106bn equivalent was raised by non-investment grade companies according to data from Moodys. Whilst this is beneficial for the long term diversification and growth of the market, there have been some negative trends. Given the intense demand for new issues, companies and their advisors have been able to … Read the article
Much like fine wines, we believe that the year in which a bond is issued is an important factor in shaping its inherent character. The right climate in the markets, like the right weather conditions in the Gironde, can influence the nature of a security for better or for worse. 2013 is already a record year for the new high yield issuance in Europe (see the chart below). But will 2013 be one of… Read the article
It’s fair to say that we have been toning down our view on the high yield market of late. We could well see returns in the high single digits for 2013, but the potential for more substantial capital gains is less apparent in today’s context.
This does, however, ignore quite a powerful feature of the current high yield environment – the scope for exploiting opportunities and pricing dislocations… Read the article
Earlier this year, Stefan highlighted the potential for sovereign debt downgrades to push big European companies into high yield territory becoming “fallen angels”, issuers downgraded from investment grade to high yield. This is something the Financial Times has also recently picked up on. The chart below shows how near the average European sovereign ratings are to sub-investment grade.
Rating… Read the article
High yield and equities have historically been seen as highly correlated in terms of their returns, and before 2008, this was true. However, what we have witnessed in the post-Lehman environment is a structural shift that requires a more nuanced appreciation of the relationship between fixed income and equities. This is something we looked at in a more in depth piece we published earlier this y… Read the article
As we’ve stated earlier this year, we think the European high yield market is presenting us with some very interesting opportunities. As of 6th October, one of the high yield indices that we track had an average yield to maturity of 12.0%. This equates to a risk premium above and beyond government bonds of around 10.4%, a level that we believe more than compensates investors for expected defaul… Read the article
As my esteemed colleague Stefan pointed out earlier this year, we are beginning to see some attractive value emerging in the European high yield market. I thought it would be worth giving a quick update on what is being priced in and also peel back the lid on the market and take a peek inside at some of the individual high yield issuers lurking within.
Let’s start with the overall market. As of… Read the article