Real yields on European junk bonds go negative for first time
Summary
Analysts said investors’ willingness to extend credit to the most risky borrowers while effectively losing money reflects a lack of other opportunities to profit in the bond market. Ian Samson, Fidelity International’s Multi-Asset Fund Manager, said: “High yield bonds are one of the preferred ways to take risks at this time, as the investment outlook is strong enough and may not result in a large default cycle.” The European Central Bank will meet on Thursday and investors expect to announce a slowdown in bond purchases in response to recent improvements in the economic outlook and lower funding costs for governments, businesses and households. However, most investors say that by the time the ECB stops buying bonds and begins raising deposit rates from a record low of minus 0.5%, especially after changing its strategy to set higher inflation standards in July. Central banks’ ultra-loose monetary policy has already pushed other yields of other types of eurozone debt into the negative territory, and investors are rushing to get a return on their capital. Duncan Lamont, head of research and analysis at Schroeder, believes junk bond investors are likely to see lower inflation in the euro area these days, and current negative real yields are less of an issue.