How are European fund selectors allocating to high yield?

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Growth in the US and Europe should be sufficiently positive to support earnings momentum this year, keeping defaults in check. However, there remains a risk from increased protectionism, due to President Donald Trump’s policies. Credit fundamentals remain solid, helped by robust economic conditions and decent earnings growth. Despite the significant tightening in yields and credit spreads, the high-yield sector still looks relatively attractive compared to many other asset classes (even in a rising-rate environment). We think the technical picture remains supportive for the European high-yield market. We do not envisage European interest rates moving significantly higher, given continuing political issues, concerns surrounding Greece and ongoing European Central Bank purchases. The US high-yield market, however, could experience some short-term weakness from further interest rate hikes, exchange-traded fund outflows and a weaker oil price.

Uli Gerhard – Insight, a BNY Mellon company

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