Small and medium-sized bond issues in Europe offer higher spreads than their U.S. equivalents. This premium reflects the unique structure of the European market, where investors are often rewarded for navigating less liquid and more complex securities. Europe’s bond market is fragmented due to different tax systems, legal frameworks and bankruptcy regimes across countries. This fragmentation results in greater price inefficiencies compared to the more unified U.S. market.
Furthermore, the European High Yield market has a larger share of BB-rated bonds — the strongest segment within High Yield — while the U.S. market is more exposed toward B and CCC ratings. As a result, credit ratios are generally better in Europe. Additionally, supportive fiscal policy in Europe is providing a fundamental boost to the economy, further enhancing the outlook for European High Yield bonds.
