Junk Bonds Need a Little Love Too
Non-investment grade companies don’t get protection from the ECB, but they employ people too and will be crucial to Europe’s recovery.
In this together.
Photographer: Stringer/Getty Images AsiaPacSpare a thought for the European high-yield bond market as the euro-zone economy hits a brick wall. A halt to revenues because of the coronavirus lockdowns has brought distress to a whole range of companies, which might be fundamentally sound despite their riskier credit ratings. Although the European Central Bank has put in place comprehensive measures to support bank lending, the transmission mechanism doesn’t always reach where it’s most needed.
The ECB’s Quantitative Easing bond-buying programs may exceed 1 trillion euros ($1.1 trillion) this year, but it won’t buy from companies beyond the lowest rung of investment grade debt-rating, BBB. The central bank should think seriously about widening the remit of its corporate sector purchasing program to include junk bonds.