Junk bonds sold by retailers in Europe are set for the best first half in three years even as returns in the wider market shrink.
The debt of non-food retailers returned 7.2 percent this year, according to Bank of America Merrill Lynch index data, rebounding from a 12 percent loss in 2014, when they were the worst-performing industry group. The European junk-bond market returned 1.9 percent this year, set for the worst first half since 2008.
Europe’s shoppers are heading back to high streets and malls as European Central Bank stimulus helps boost domestic product growth and consumer confidence. High-yield bonds were drawn into a selloff that’s wiped about 400 billion euros ($451 billion) from the euro area’s credit markets since April.
“Everybody predicted an apocalypse that did not come,” said Axel Cabrol, a portfolio manager at Butler Investment Advisors in Paris. “Last year, the market pushed to bet against retailers, especially French companies.”
France’s high-street clothing chain IKKS Group SAS and Paris-based jewelry seller THOM Europe SAS are among the biggest gainers this year.
IKKS’ 320 million euros of bonds due 2021 handed investors a 22 percent return this year, according to data compiled by Bloomberg. The notes rallied from a low of 78.7 cents on the euro on Jan. 21 to 96.9 cents Wednesday, the data show.
The company’s earnings grew 18.7 percent to 22.2 million euros in the fourth quarter, according to a private financial document obtained by Bloomberg.
THOM Europe’s 347 million euros of bonds due 2019 returned 12.7 percent since January as prices rose to 104 cents on the euro Wednesday from 95.2, according to the data.
The average yield on speculative-grade debt in euros is at 4.5 percent after reaching an eight-month low of 3.6 percent in February. A gauge of consumer confidence climbed to a more-than seven-year high of minus 3.7 in March from minus 10.9 at the end of last year. It was at minus 5.5 in June, according to analyst forecasts compiled by Bloomberg.
The discounted loans of some retailers have also bounced back. The senior debt of Spanish clothing chain Cortefiel SA and French clothing designer Vivarte SAS have gained more than 15 percent since January, according to two people familiar with the deals, who asked not to be identified because trading is private.
“Non-food retailers with clear market positioning are attractive now that economies are getting back in shape,” said Luca Villanti, fund manager at Seraphim Asset Management in London. “They suffered through the crisis. Now, low oil prices and low interest rates are freeing up income for discretionary spending. A pick up in employment will hopefully add the needed sugar.”