European high yield: rising stars, falling market size

2 min read 31 Oct 23

With interest rates peaking and the global economy under pressure, how has the European high yield market responded in terms of activity and performance so far this year?

As the peak of the current rate hiking cycle draws ever closer and developed economies start to slow, the impact of higher rates will likely start to bite on corporate balance sheets.

So it is interesting to see that within the high yield universe, the number of rising stars (companies upgraded from high yield to investment grade ratings) continues to outpace that of fallen angels (the reverse). IAG (the owner of British Airways) was upgraded to investment grade by S&P in early October, hot on the heels of another travel-related name, Accor, last month.

Issuance in the high yield market remains very low compared to recent history. While 2023 issuance is higher than last year’s, it is behind that of other recent years:

The combination of this upward ratings trend and low issuance has led to a fall in the size of the high yield market – in marked contrast to the investment grade experience.

Since 2022, the face value of investment grade credit markets has grown by almost 10% while high yield markets have fallen by over 10%:

This relative scarcity of high yield assets is probably a reason why the sector has outperformed investment grade so far this year:

The value and income from the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested. The views expressed in this document should not be taken as a recommendation, advice or forecast. Past performance is not a guide to future performance.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

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