Low Defaults See Investors Favoring High-Yield Bonds, Fitch Says

Low corporate default rates are leading managers of about $7.2 trillion of European fixed-income securities to favor high-yield bonds relative to other debt, according to Fitch Ratings.

Junk securities came out top in the ratings company’s quarterly survey of investors, beating financial bonds and other company debt, Fitch said. Twenty-one percent of respondents cited high-yield as their top choice.

“The hunger to earn some return is increasing,” said Monica Insoll, a managing director at Fitch in London. “The other important part of the equation is that historic default rates remain low. If you avoid default, you’ll earn good money.”

Europe’s default rate dropped to 1.3 percent in the second quarter from 10.48 percent at the height of the financial crisis, according to Fitch. Total returns for junk bonds were 15.3 percent for the year to Aug. 10, the ratings firm said, outpacing emerging market and sovereign debt for the first time since 2009.

Even as investors favor high-yield bonds, 51 percent of investors expect credit conditions to deteriorate, up from 37 percent in the previous quarterly survey, Fitch said.

The survey was conducted July 2 to Aug. 2 and Fitch is set to publish the full results in mid-August.

To contact the reporter on this story: Maria Tadeo in London at mtadeo@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net