European Junk Bonds Are Among This Year’s Best Performers

Europe’s junk bonds have reaped in double-digit returns, ranking among the best-performing asset classes so far this year.

• Annualized returns of bonds rated CCC and below have recorded annualized returns of 16.3%, surpassing the 11.7% recorded in 2020. This brings them among the top asset classes so far this year, based on findings of Bank of America Corp. analysts.
• The biggest gains have been seen in the offerings of Kleopatra Holdings and Douglas. Subordinated bank bonds have also rallied, with Piraeus Financial Holdings SA’s 500-million euro bond up over 50%.
• Investors are finding the CCC-rated bonds attractive, given the expected rating upgrades. The Bank of America expects 60 billion euros of high-yield upgrades this year.
• Funds have been increasingly moving down the ratings to boost returns, with the CCC-rated McLaren Finance PLC gobbled up by investors even as equity volatility grew the most in three months.

Analysts doubt that CCC-rated bonds can keep up the momentum, citing the slowing macroeconomics and the global tapering of quantitative easing.

Source: Bloomberg