European High Yield Enters a New Default Paradigm

In late 2020, we outlined five factors that were set to support the European high yield market going forward—one of which was an evolving, low-default environment.

While European high yield bonds have rallied strongly since the depths of the COVID crisis, our expectation for additional spread tightening over the medium to long term is underpinned by our proprietary default analysis, which continues to reflect several factors allowing issuers to reduce their cost of capital and extend their maturities as they enter what will likely become a new paradigm of historically low defaults.

During the depths of the COVID crisis in mid-2020, we conducted a bottom-up default analysis across the European high yield sector. At that time, we concluded that defaults would remain well below 3% over the next 24 months, far less than the consensus views at the time as those generally focused on a top-down approach and largely failed to incorporate how monetary and fiscal stimulus would support individual corporations. 

You can now read the full whitepaper at the link below