Investors in European junk bonds have begun accepting interest payments that are lower than eurozone inflation levels for the first time ever, in the latest sign that central banks’ crisis-era debt purchases have shifted the balance between risk and reward.
The yield on ICE and Bank of America’s European high-yield index of subinvestment grade bonds was pushed down to 2.34 per cent this week, marking the first time buyers of so-called high-yield European currency bonds have accepted payments below consumer price inflation in the eurozone, which hit a decade high of 3 per cent in August.
Analysts said investors’ willingness to extend credit to the riskiest borrowers while losing money in real terms reflected the scarcity of other opportunities to earn returns in debt markets. At the same time, Europe’s strong recovery from the pandemic following a bumper earnings season has reduced the risk that junk bond issuers will default.