HALISTER1: Euro HY Bonds Could Beat IG If Rates Selloff Extended: Analysis

Euro HY Bonds Could Beat IG If Rates Selloff Extended: Analysis

(Bloomberg) -- European corporate-bond investors may increasingly favor shorter duration should the rates selloff be prolonged, helping high-yield debt outperform investment-grade counterparts, Bloomberg strategist Simon Ballard writes.
  • HY bonds currently have a shorter duration profile vs IG
    • Bloomberg Barclays Euro High Yield index has modified duration of 3.52 years, vs 5.42 years for Bloomberg Barclays Euro-Aggregate Corporate bond index
    • Bloomberg Barclays Euro High Yield index year-to-date total return is 8.12%; that beats 5.01% for the Bloomberg Barclays Euro-Aggregate Corporate bond index
  • This month’s rates selloff was the biggest in more than year; 10Y bund yields jumped 27bps, the most since June 2015
  • Any marked deterioration in macro conditions or credit fundamentals may trigger a defensive investor bias, causing a asset allocation shift up in quality
    • A renewed rally in rates would likely reinvigorate the hunt for yield, underpinning spreads across the quality curve
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

To de-activate this alert, click here

UUID: 7947283