European high-yield companies are benefiting from political initiatives, structural advantages, and clearer market predictability. Recent spread volatility presents attractive opportunities, while strategic reallocations aim to enhance portfolio resilience. Europe currently offers greater stability and competitive yields.

 

12M Corporate Spread ranges and Current levels (%)
Chart Chart

Source: Bloomberg, Neuberger Berman calculations. Data as of May 26, 2025.

 

In early April, risky assets faced significant pressure as Trump unveiled a tariff plan labeled "Liberation Day." Credit spreads widened sharply across both Investment grade and High Yield globally, mirroring the reaction of other risky assets.

Back then, our high yield team identified this as a timely opportunity to enter spreads at highly attractive levels, as highlighted in High Yield’s Eye-Catching Spreads.

The Chart illustrates the highs and lows in spreads over the past 12 months for both Investment grade and High Yield indices. Since then, markets have substantially retraced, stabilizing as volatility declined.

Although spreads are no longer at those extreme levels, the European High Yield market remains well-supported:

  • Shift in Investor Focus: European investors are favoring local markets over USD allocations, drawn by compelling fundamentals and valuations.
  • Clearer Economic Outlook: Europe’s outlook is seen as more predictable compared to U.S. uncertainties around trade barriers and supply-side shocks.
  • Sector Resilience: Key European sectors like telecoms, healthcare, and utilities remain largely shielded from the price volatility affecting U.S. sectors.
  • Fiscal Stimulus Boost: Germany’s infrastructure package and broader European fiscal measures offer long-term structural tailwinds for high yield issuers.
  • Low Structural Concerns: The market lacks major structural risks, like heavy underwriting volumes in leveraged buyouts, reducing potential trouble.
  • Moderate Default Rates: Default rates are expected to remain at historically average levels, signaling market stability.
  • Diversified Market: Minimal concentration risks lower the likelihood of significant spread widening events.
  • Resilient Investment Opportunities: Defensive and high-quality names in European high yield provide stability, with portfolios adjusted away from cyclical sectors.
  • Positive Year-to-Date Performance: Despite April’s volatility, spreads have largely retraced, delivering positive total returns for the year.
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