As of the end of May, the European High Yield index delivered a return of over 1.3%, fully erasing the losses from March and reaching new highs for the year at 2.30%.
Despite this strong performance, the European High Yield market continues to offer an attractive medium and long-term opportunity, considering that default rates are expected to remain contained and breakevens still provide a cushion of 201 basis points. This is illustrated in the first chart, which shows the Pan-European high yield bond index (with the left axis reflecting Yield to Worst and Option Adjusted Duration, and the right axis showing the breakeven).
The current carry provides a substantial buffer against potential increases in yields before investors would begin to experience negative total returns over a 12-month period.
