The European credit has a favorable climate, issuers with balanced balance sheets and sustained demand.
The gradual decline in inflation should make it possible to stabilize rates, an environment which, at the current stage of the economic cycle, makes investment in European bonds particularly interesting. And, despite the volatility caused by customs duties, we can remain overall optimistic for European rate markets. The yield differentials having returned to their levels at the start of the year, the portage of bonds is attractive. For quality obligations as well as for high performance, yields are interesting. A diversified portfolio managed cautiously and made up of bonds in euros noted BB and B offers a return of more than 4.5%.
In Europe, although growth is sluggish, it remains slightly positive. And as long as it does not fall suddenly, that is to say that the economy does not enter into recession, companies will be able to pay the coupons on the obligations they have issued.
A very sustained demand
In addition, the demand for fixed rate securities is always very sustained. Since the start of the year, high -performance bond funds have recorded capital of 1.7 billion euros, which clearly helps to support valuations. To meet this request, companies have gone to refinance early: the primary market is very active and last May the new emissions reached a record amount.
Unless there is an economic slowdown marked in Europe, payment defects should gradually decrease by the end of the year.
At this stage of the cycle, the high performance benefits from a very favorable situation, because there is no excitement of the economy or recession. Payment defects seem to have progressed in May. But this increase is mainly explained by the largely anticipated failure of SFR, the French telecommunications operator as well as by those of other smaller companies. That said, and this is the most important element, the rate of losses is reduced, because the rate of collection of receivables is high. Unless there is an economic slowdown marked in Europe, payment defects should gradually decrease by the end of the year. In view of the demand sustained for yields that remain attractive as well as a market very favorable to new operations, the European credit offers a very interesting portage.
Very favorable fundamentals
Overall, companies’ balance sheets have been managed in a relatively conservative manner. In the past five years, companies have learned to navigate in extremely difficult conditions, first during the Covid epidemic, then during the inflationary phase and, more recently, when they were faced with the erratic policies of the White House.
In recent years, the issuers noted BB and B have managed their debt with caution, which has resulted in a decrease in their debt/Ebitda ratio. For the time being, there is nothing to augur with a runaway for mergers and acquisitions, nor the massive recourse to debt to ensure the payment of dividends. The situation is quite different for the issuers noted CCC, because their debt progressed during the latter quarters. However, this category of transmitters represents only a small part of the credit universe.
Another positive factor to be taken into consideration, the benefits resisted rather well in the first quarter of 2025 and the forecasts of analysts concerning the beneficiary margins were not revised to decrease significantly. The threat represented by the taxation of higher customs duties affected the automotive sector and, in view of uncertainty, some companies have reduced their expectations. But overall the universe of European high yield is made up of many transmitters which are not directly affected by customs prices. This is the case of companies active in the telecommunications sectors, communities services or, in certain cases, in that of health. Small regional actors also escape the threat of customs duties. It can therefore be said that, overall, the fundamentals of companies remain solid and the latter should continue to manage their balance sheets with caution.
