Is EU high yield still worth a look?

ON HIGH YIELD

Returns from European high yield are low, leading many investors to look elsewhere. But technical support is still in place and the outlook is sanguine, says Alliance Trust investment's Kenny Watson.

With all-in yields close to their lows and spreads approaching pre-crisis levels, investors and commentators are questioning the level of future returns from European high yield. Valuations in terms of all-in yields are low and any upward pressure on German bond yields may result in returns being restricted. Also, a high percentage of the market is call-constrained which limits material capital appreciation from current levels, as it is advantageous for the issuer of the bonds to call these and take advantage of the low refinancing costs in the market. Other factors worth watching ...