Sub Investment Grade Market

EMEA benchmark bond spreads by rating category As of May 19, 2021

EMEA benchmark bond spreads by rating category* Developments compared to January ’20 (index =1x)

Sub Investment Grade Market - Market observation per 17 May 2021 -

Leveraged finance markets stabilising on a new normal

  • Following the recovery late 2020, Eurozone leveraged finance spreads returned to pre-2020 levels of 375-400 bps (B+/B rated credits)
  • Showing a remarkable resilience to increasing sovereign yields and inflation concerns which have been driving up low-investment grade (BBB) yields since February ‘21
  • A flurry of pricings at or below the tight end of price talks indicates that bankers have yet to fully adjust to the new price levels

Sell side demand shifting towards M&A

  • The pace of repricing of 2020 transactions tapered off at the end of Q1 ’21 as issuers started to factor in the new normal and focused on M&A
  • Private equity’s substantial dry powder, corporate M&A, and attractive public takeover economics triggered a surge of activity
  • This pushes YTD April ’21 loan and bond issuance volumes up to EUR 96 bn, 110% up from YTD April ‘20 and 60% higher than the record year 2017

Buy side supply driven by the search for yield

  • 2021 has seen strong supply from established fund managers seeking higher relative yields in addition to shelter from inflation and rising sovereign yields
  • CLO supply remains especially strong, with some managers struggling to retain sufficient staff
  • Established fund managers increasingly have to compete with Eurozone institutional investors moving into higher return illiquid assets such as loans and private credit