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High yield issuances tipped for new record
24 April 2014
Estimates value 2014 new business at €110bn
The expansion of the high yield market offers greater
alternative credit opportunities and portfolio diversification,
according to research from Candriam .
The end of cheap money? investigates fixed income
investing as monetary policy tightens and looks into ways to
optimise risk/return potential in credit markets. It also
details which strategies, in particular high yield strategies,
are best adapted to benefit from credit opportunities and
Patrick Zeenni, deputy head of high yield & credit
arbitrage Candriam said: "With the end of cheap money
approaching, investors now face two major concerns: the impact
of rising interest rates on investment portfolios and how to
find attractively priced yield. Investors must therefore change
their fixed income investment decision-making process to
address these new challenges. We firmly believe portfolio
performance will now come from alpha generation."
According to the report, the key for many investors is to focus
on alternative credit investment opportunities, such as high
yield corporate credits which have a low correlation to
interest rate movements and offer more attractive yields, along
with a flexible and dynamic management to mitigate key risks.
Spreads have normalised and dispersion among securities is
rising as normal macro and market environments return.
"With current assets representing over €1300bn globally,
of which €280bn in Europe, the corporate high yield
segment still only represents approximately 25% of the US
market," added Zeenni.
"But the depth of the market is significantly expanding by
geography and sector and we are seeing a significant increase
in issuances in emerging markets and non-core European
countries. Confidence around the high yield asset class is
rising as the need for refinancing remains high. In addition,
its ability to inject diversification in a portfolio is also
crucial in today’s environment."