Since the start of the year, credit spreads of European loans have increased from around 400 bps to above 700 bps. At the same time, short-term interest rates have just been lifted to around 2% by the ECB on October 27th. As a consequence, European loans earn now on average an attractive yield of 9% p.a., which represents a decent premium vs. other segments of the high yield market. As the chart demonstrates, not all HY sectors have evolved equally. For example in the US, spreads for HY bonds and leverage loans rose by around 200 bps. At the same time, European HY spreads widened by ~300 bps to ~600 bps. Fundamental factors such as the energy and power crisis in Europe have partly led to this spread gap, but also technical factors have been at play, such as increased demand for loans by new CLOs in the US, contrasting with forced selling in Europe.
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