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Global High Yield: European Bonds in Pole Position

05/26/2016

Despite the risks of slowing global growth and more falls in oil prices, prospects for European high-yield debt are particularly encouraging, says Kevin Mathews, Head of Global High Yield at Aviva Investors.

Key points

  • While default rates are likely to rise in 2016, as more energy businesses default, they are unlikely to soar
  • Some investment-grade energy issuers may be downgraded to high-yield status in coming months
  • We believe global high-yield bonds will return between three percent and five percent in 2016. While this is lower than in recent years, returns still look decent compared with those likely from better quality bonds and shares
  • The outlook looks most promising in Europe, especially given its lighter weighting to energy companies. Issuers in the financial and consumer discretionary sectors offer particular value
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