ECB and Trump rally help European junk bond issuance double

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Growing risk appetite as investors embraced the so-called “Trump trade” helped issuance of high-yield corporate bonds in Europe more than double in the first quarter, but from a very low base, according to data from Fitch Ratings.

Total junk bond issuance of €30bn was 2.5 times greater than in the first quarter of 2016, when markets were rocked by fears of an economic shock in China. The riskiest debt, with credit ratings below B-, made up the highest share of total high-yield issuance since 2013, highlighting the extent of market optimism.

Companies were also helped by the European Central Bank’s quantitative easing programme. A lack of supply of bonds in the wider market – exacerbated by the central bank’s bond-buying – helped to offset rising inflation expectations and meant demand for bonds continued to rise, driving down yields.

Fitch said companies in developed markets were particularly keen to take advantage of the positive conditions, raising three times as much money as in the same period last year.

The total included significantly more US companies, which looked to take advantage of lower interest rates and the weak euro. US corporates made up 20 per cent of the total supply of European high-yield bonds in the quarter, and Fitch predicted the so-called “reverse Yankee” trade will remain popular for the remainder of the year.

However, while the figures mark a strong rebound compared to last year, total issuance was still significantly lower than in earlier years, coming in at the second-lowest level since the financial crisis.

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