In the past two years, net issuance of high-yield bonds has declined significantly. A sharp rise in the cost of capital coupled with a phase of enormously increased new issues in 2020 and 2021 led to a slump in the size of the European high-yield market.
In addition, there are a considerable number of issuers that enjoyed credit rating upgrades and have as a consequence exited the HY market, known as “rising stars” – outpacing the number of “falling angels” (IG-downgrades to HY). On top, a higher number of companies went bankrupt and left the market.
These factors, combined with positive capital flows entering both ETFs and investment funds with high yield focus, have created a scarcity effect and consequently tightened credit spreads, which have provided support during this time.
