European high-yield names have had a clear run at the US capital markets during 2012, taking advantage of the search for yield pick-up among US investors such as bond funds, insurance companies, pension funds and hedge funds. With both retail and institutional money being allocated to funds, they have steady inflows of cash that needs to be invested. Meanwhile, investors such as insurers and pension funds have moved down from the lower reaches of investment grade into BB rated territory in order to generate some additional yield for their portfolios. And for low ’B’ rated names there has also been strong buying from hedge funds.
Most issuance is in the five- to 10-year segment of the curve, allowing corporates to put in place large amounts of medium-term finance at low rates, and strengthen their balance sheets. Many have been moving away from bank loans, given the deleveraging at banks across Europe, and are instead raising bond financing with flexible covenants.
