European High Yield: Twenty Years of Performance Rivaling Equities
Long considered a risky and cyclical segment, the European High Yield market has nonetheless delivered a cumulative performance almost equivalent to that of the stock market over the past twenty years. With more moderate volatility and proven resilience during stress periods, this asset class is regaining interest in an environment where central banks are moving towards gradual easing.
A Long-Term Performance Often Overlooked
In 2025, European High Yield bonds are up by 4.9% as of November 30, following an increase of 8.5% in 2024 and 12.1% in 2023. Over a longer period, since its inception in 2006, the HEAE index excluding financials has shown a cumulative rise of 159%, close to the 166% of the Stoxx Europe 600 with dividends reinvested. The index including financials even surpasses this mark with a gain of 178%. This comparability challenges the common perception that high-yield bonds lag significantly behind stocks in terms of potential.
This momentum is partly explained by the high returns offered by this segment, as well as its ability to cushion shocks. During the correction from February to April 2025, the Stoxx Europe 600 fell by 8.3%, while High Yield bonds only declined by 2%. This difference highlights a fundamental characteristic: lower volatility, both in daily and monthly data, which helps smooth out cumulative performance.
Looking Ahead to a Favorable Yet Selective 2026
The outlook for 2026 is set within a more stable environment than anticipated: moderate growth, gradual monetary easing, and well-positioned corporate profits. However, Lazard Frères Gestion warns against excessive optimism. The current historically tight spreads do not fully reflect sector-specific risks and could limit the potential for tightening. The segment will remain sensitive to defaults by issuers weakened by past interest rate hikes, even though the announced reduction in financing costs partially alleviates the pressure.
The underlying trend remains favorable: as long as growth does not collapse and inflation continues to decline, credit portfolios benefit from an attractive risk-return profile. For both institutional and private investors, High Yield once again becomes a relevant component of a diversified allocation, provided there is a focus on selectivity, issuer balance sheet quality, and active management.
This content has been automatically translated using artificial intelligence. While we strive for accuracy, some nuances may differ from the original French version.
