Junk Bonds Gain as Greece Deal Boosts Appetite for Europe RiskKatie Linsell
Junk-bond investors in Europe are recouping some of the worst losses in two years as a new Greek bailout agreement encourages investors to take on more risk.
High-yield bonds in euros earned investors 1.1 percent in the past week, boosting the month’s returns to 0.8 percent, according to Bank of America Merrill Lynch index data. The rally pushed down average borrowing costs from the highest since October 2013 and the cost of insuring the debt dropped to the lowest in almost two months.
Greek lawmakers passed new austerity measures early Thursday, potentially unlocking as much as 86 billion euros ($93 billion) of aid and ending a deadlock with creditors that threatened the nation’s euro membership. The prospect of an end to the crisis has brought companies back to the high-yield market, with offerings from Japanese mobile carrier SoftBank Group Corp. and a German debt collector owned by private-equity firm Permira Advisers.
“People are more willing to take credit risk,” said James Tomlins, a London-based fund manager at M&G Investments, which oversees more than 270 billion pounds ($420 billion) of assets. “Now it looks like we’re over the Greek hump, you can be more confident in Europe and economic data, so high-yield looks attractive.”
Concern that Greece would exit the euro chilled the junk-bond market. Losses last month totaled 1.9 percent, the most since June 2013, according to Bank of America Merrill Lynch Index data. Issuance stalled, with no sales of speculative-grade debt since June 26, the longest drought since August, data compiled by Bloomberg show.
Outflows from junk-bond funds in Europe reached $1 billion in the week ended July 8, the fifth consecutive week of declines and the longest streak since the end of December, Bank of America Corp. strategists wrote in a report last week.
“How deals perform will give us a good indicator for just how much risk appetite is out there,” Tomlins said. “If deals are priced correctly and perform well, then that will further boost people’s appetite for risk.”
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