Junk Bond Funds in Europe Surge as QE Plan Fuels Investor Demand

Junk-rated bond funds in Europe are attracting record inflows as measures to stimulate the economy suppress yields.

Investors poured $352 million into the iShares Euro High Yield Corporate Bond UCITS exchange-traded fund last week, up from $196 million the week before, according to data compiled by Bloomberg. It’s the most popular among 356 fixed-income funds traded on European exchanges and tracked by Bloomberg.

The European Central Bank’s 1.1 trillion-euro ($1.2 trillion) quantitative-easing plan, which began today, has pushed average yields on junk bonds in euros to 3.7 percent from 4.3 percent at the start of the year, according to Bank of America Merrill Lynch index data. Investor demand for higher-yielding assets is growing, even as terms become less favorable.

“We’ve seen very, very strong inflows into euro high yield,” said Brett Pybus, a fixed income strategist in London with BlackRock Inc.’s iShares ETF business. “There have been inflows into pretty much anything that offers some yield pick-up and people have been forced to move further down the credit spectrum and to accept longer maturities.”

Companies are also taking advantage of lower borrowing costs and investor demand, selling a record $139 billion of high-yield notes in Europe in 2014 and about $27 billion this year, according to data compiled by Bloomberg.

The iShares Euro High Yield ETF, which tracks the Markit iBoxx EUR Liquid High Yield Index, was the most popular last week and so far this year. The third-largest fund that Bloomberg tracks in Europe has $4.36 billion of assets and returned 4.53 percent over the past year.

The iShares Core Europe Corporate Bond fund, which has $6.34 billion of assets, is the biggest European fixed-income ETF Bloomberg tracks and had the highest inflows last year.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE