Claudio da Gama Rose looks at how European and EM HY debt can create opportunities for diversified and enhanced returns.
Key takeaways
- Historically, U.S. HY debt has dominated the market. However, the rise of European and EM HY debt has created new opportunities for diversification and enhanced returns.
- This global approach enhances sector diversification, with different regions tilted towards distinct sectors.
- These sectors complement DM peers, enhancing the portfolio’s overall risk-return profile.
High yield (HY) bonds have continued to garner significant investor interest of late, and the case for investing in the asset class is built on several compelling factors, including attractive yields, strong fundamentals, diversification benefits, and favourable legislative tailwinds. In addition, the global HY debt market has grown significantly over the past two decades, expanding from USD0.8 trillion in 2005 to USD2.3 trillion today. This growth has transformed HY corporate debt into a truly global asset class, with increasing contributions from Europe and emerging markets (EM) alongside the US. By blending EM and developed markets (DM), investors can access a diversified portfolio that offers compelling opportunities across regions.
Historically, U.S. HY debt dominated the market. However, the rise of European and EM HY debt has created new opportunities for diversification and enhanced returns. This global approach provides access to incremental spreads without compromising credit quality as the asset class maintains an average BB- credit rating and a 3-year duration. Additionally, it enhances sector diversification, enabling investors to capture distinct opportunities across regions.
