Within a matter of only two weeks, European High Yield spreads have jumped to a spread level of 480 bps, well above the last 5 years average of 366 bps and back at August 2020 levels.
As chart 8 on page 2 demonstrates, sectors such as “food & beverages” or “chemicals” performed the worst given the spike of commodity prices in general as these sectors bear the burden of higher input prices and shrinking profit margins. Unsurprisingly, the best performers have been “energy” / “metals & mining” as well as service sectors. The former are beneficiaries of higher prices for natural resources and the latter enjoy more pricing power as compared to manufacturing companies dealing with spiking input costs. At current valuations, credit spreads appear one in a sudden attractive again, unless a recession is sitting around the corner.