๐๐ง๐ฏ๐๐ฌ๐ญ๐จ๐ซ๐ฌ ๐๐ซ๐ ๐ฌ๐๐๐ค๐ข๐ง๐ ๐ก๐ข๐ ๐ก ๐ฉ๐ซ๐๐ฆ๐ข๐ฎ๐ฆ ๐ญ๐จ ๐ก๐จ๐ฅ๐ ๐ญ๐ก๐ ๐ซ๐ข๐ฌ๐ค๐ข๐๐ฌ๐ญ ๐๐ฎ๐ซ๐จ๐ฉ๐๐๐ง ๐๐๐๐ญ.
High-yield bonds with CCC and lower credit ratings are experiencing widening spreads in Europe and just reached 18% for the riskiest businesses.
The spread is expanding due to growing fears of economic uncertainty and slowdown combined with higher rates for longer are pushing expected future default rates, which needs to be compensated.
Additional reasons for the widening CCC spread in the European high-yield bond market are the lack of depth and liquidity, a bank-based financial system (the US is a more financial market-based system), a relatively small market size, and individual weightings in the index.
On a positive note – the spread of the broader European high-yield index (bonds rated BB or below) is improving and reached 4.9% (down from 6.6% in July 2022). The narrowing spread is defying some of the concerns listed above and showing investors’ confidence in broader European business creditworthiness.
According to Fitch Ratings, as of Q3 2023, the European high-yield market weights by credit ratings:
- BB – 45%
- B – 40%
- CCC – 15%
This means that the majority of the European high-yield market is made up of BB and B-rated bonds, with CCC-rated bonds making up a smaller portion. But the lowest-grade companies (rated CCC and below) are hit the hardest during the market uncertainty.
Source: FT / #investing #bonds #finance
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