High yield bonds data: Hover over the charts to see the values at a given date. iBoxx EUR High Yield Overall Index data provided by Markit Group Ltd
i) High Yield Bond Index: Corporate Spreads
The high yield bond market saw option-like returns in 2009. Total returns exceeded 70% in that year. Admittedly we saw the recovery come after some very depressed valuations into the end of 2008. Spreads were at their all-time wides on the back of the crisis and in 2008, there was zero issuance. Nothing. We think that the high yield bond market still retains its fledgling tag. Issuance levels may have hit €50bn+ in 2014/15, but the reality is, this market closes at any hint of trouble. European high yield credit benefitted from the high/low beta compression trade from 2012-2014, but subsequently came under pressure from the contagion impact of the US shale bust.
Euro HY is now in record territory on the supply front, while we backed up from record spread and yield levels after a difficult start to November. Moderate progress has been made since but record spread and index yield levels were not tested again in December – but we think they will in 2018.
MiFID II Countdown
ii) High Yield Bond Index: Spreads 2015-
iii) High Yield Bond Index: Yields
Funding costs for borrowers have been dropping for a while but have backed up from record low levels. The index yield record low of 2.31% was recorded in early November, but is now 2.81%. The primary market delivered too, and the wall of funding is not an issue as yet for the broader market. Corporates are still taking advantage of the demand for high yield risk by borrowing aggressively and pushing redemption profiles out, to 2019/20. With underlying yields (rate markets) set to remain anchored around current levels (not going higher) through Q1/2 2018, then we will need an unlikely material weakness in spreads to see any further material rise in high yield corporate bond yields.