High-yield corporate bonds in Europe will hand investors returns of as much as 8 percent this year as the region’s stuttering economy boosts the likelihood of policy makers suppressing borrowing costs, according to Roger Webb, an investment director at Aberdeen Asset Management Plc.
The prediction is an increase from his forecast for gains of as much as 7 percent made in January. Webb, who is based in London, also revised the outlook for returns on investment-grade debt to as much 7 percent from 5 percent.
“The outlook for both high yield and investment grade is better than what I considered at the start of the year,” said Webb, who helps manage 104 billion pounds ($172 billion) in fixed income at Europe’s biggest publicly traded money manager by assets. “We expected upward pressure from rising inflation. Instead, inflation is low and policy makers are taking a much steadier course, indicating rate rises won’t come through at anything like the pace the market predicted.”
Euro-area manufacturing and services activity slowed in August, a preliminary report showed yesterday, while the recovery stalled in the second quarter as the region’s three biggest economies failed to grow. With inflation also slowing to 0.4 percent in July, pressure is increasing on the European Central Bank to hold its benchmark interest rate at 0.15 percent to spur a recovery.
Investment-grade bonds in euros already returned an average 6.06 percent this year compared with gains of 0.76 percent in the same period of 2013, according to Bank of America Merrill Lynch indexes. Yields on the debt tumbled 72 basis points to a record 1.36 percent.
High-yield bonds handed investors gains of 5.17 percent compared with 4.6 percent last year while yields fell an average 40 basis points to 3.89 percent, the indexes show.
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