Concerns about an oversupply of new issues of European high yield debt have now subsided according to Roman Gaiser, a European high yield specialist at F&C Asset Management.
Gaiser believes two trends will underpin the market during the remainder of the year. The first is a wave of high yield bonds reaching maturity and, secondly, buoyant levels of capital market activity that will see some 5% of the market redeem.
“In the coming 3-4 months a staggering 4 billion euros of European high yield debt is set to mature which is a huge chunk of a market that in total stands at around 75 billion euros,” he said.
“These redemptions largely stem from a wave of new issuance in 2000 with some of the big issues set to mature in the near future being Fiat, Ahold and Goodyear.”
He believes these redemptions will provide institutions with further power as cash is freed up to re-invest. He also stresses that the level of bond maturations looks set to outweigh an otherwise solid new issuance pipeline which makes for a very healthy backdrop to the market.
“The second factor which is supportive to the high yield market is the brisk level of corporate activity, notably trade sales and IPOs,” said Gaiser, “which often results in the early pay down of ‘expensive’ debt, to the benefit of existing high yield bondholders.
“As a result of these factors we are now once again bullish for the European high yield market and there’s potential for spread tightening. Coupons paid by B-rated companies look particularly attractive and I am continuing to aggressively target these for a number of F&C’s portfolios including the F&C Strategic Bond Fund.”