January 31, 2025 at 4:38 PM GMT+0

Challenges Facing Europe's Riskiest High-Yield Bonds

According to a recent report by Goldman Sachs Group Inc., the riskiest segment of Europe's high-yield corporate bond market is navigating a perilous path as refinancing challenges loom large. As reported by Bloomberg, over 30% of the notional amount of Europe's lowest-rated bonds is set to mature between now and the end of 2026, with refinancing costs remaining prohibitively high. Goldman Sachs credit strategists, including Lotfi Karoui and Spencer Rogers, warn that this scenario may lead to an increase in defaults over the next year.

The strategists highlight that CCC-rated issuers within the EUR market face significant refinancing issues. Current yields for CCC debt are more than double recent weighted-average coupon rates. Unless there is a significant improvement in credit spreads in this market, similar to what occurred in the USD market during the latter half of 2024, the issuer-weighted default rate is anticipated to rise within the next year.

In contrast, the U.S. junk bond market presents a different story. Despite potential challenges, the incremental cost of refinancing debt due over the next three years is deemed "largely manageable" with the expectation of moderate earnings growth. According to the strategists, a noticeable increase in the default cycle in the USD high-yield market would only occur with a substantial GDP growth slowdown or an outright recession, neither of which is currently anticipated by Goldman.

While Europe faces hurdles within its CCC-rated bonds, other segments like BB and single B ratings appear to have a more manageable path forward. However, January's issuance of junk bonds in both the U.S. and European markets has lagged behind historical averages, with U.S. firms pricing $14 billion and European firms pricing EUR6 billion ($6.23 billion), as cited by Goldman.

The relatively low issuance numbers have contributed to a strengthening of the secondary market. In the U.S., the average yield on CCC-rated bonds fell by 40 basis points to 9.76% this month, marking the most significant monthly drop since November. Conversely, a Bloomberg gauge shows the yield on CCC euro and sterling-denominated debt remaining above 13%. The experts from Goldman underscore that the weaker-than-average primary market activity in high-yield bonds does not indicate weak investor demand. Instead, it reflects the greater sensitivity of high-yield issuers to funding costs, which necessitates strategic timing for issuance.

Source: IndexBox Market Intelligence Platform

  1. 1. INTRODUCTION

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  2. 2. EXECUTIVE SUMMARY

    A Quick Overview of Market Performance

    1. KEY FINDINGS
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  3. 3. MARKET OVERVIEW

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    1. MARKET SIZE
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    1. TOP PRODUCTS TO DIVERSIFY YOUR BUSINESS
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  9. 9. GLOBAL EXPORTS

    The Largest Exporters on The Market and How They Succeed

    1. EXPORTS FROM 2012–2024
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    • United States
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  12. LIST OF TABLES

    1. Key Findings In 2024
    2. Market Volume, In Physical Terms, 2012–2024
    3. Market Value, 2012–2024
    4. Per Capita Consumption, By Country, 2018–2024
    5. Production, In Physical Terms, By Country, 2012–2024
    6. Imports, In Physical Terms, By Country, 2012–2024
    7. Imports, In Value Terms, By Country, 2012–2024
    8. Import Prices, By Country Of Destination, 2012–2024
    9. Exports, In Physical Terms, By Country, 2012–2024
    10. Exports, In Value Terms, By Country, 2012–2024
    11. Export Prices, By Country Of Origin, 2012–2024
  13. LIST OF FIGURES

    1. Market Volume, In Physical Terms, 2012–2024
    2. Market Value, 2012–2024
    3. Consumption, By Country, 2024
    4. Market Volume Forecast to 2030
    5. Market Value Forecast to 2030
    6. Products: Market Size And Growth, By Type
    7. Products: Average Per Capita Consumption, By Type
    8. Products: Exports And Growth, By Type
    9. Products: Export Prices And Growth, By Type
    10. Production Volume And Growth
    11. Exports And Growth
    12. Export Prices And Growth
    13. Market Size And Growth
    14. Per Capita Consumption
    15. Imports And Growth
    16. Import Prices
    17. Production, In Physical Terms, 2012–2024
    18. Production, In Value Terms, 2012–2024
    19. Production, By Country, 2024
    20. Production, In Physical Terms, By Country, 2012–2024
    21. Imports, In Physical Terms, 2012–2024
    22. Imports, In Value Terms, 2012–2024
    23. Imports, In Physical Terms, By Country, 2024
    24. Imports, In Physical Terms, By Country, 2012–2024
    25. Imports, In Value Terms, By Country, 2012–2024
    26. Import Prices, By Country, 2012–2024
    27. Exports, In Physical Terms, 2012–2024
    28. Exports, In Value Terms, 2012–2024
    29. Exports, In Physical Terms, By Country, 2024
    30. Exports, In Physical Terms, By Country, 2012–2024
    31. Exports, In Value Terms, By Country, 2012–2024
    32. Export Prices, 2012–2024

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