Investors chase high yield across Europe

European investors who pumped billions into high-yield bonds in first half of 2011 could see asset class faced with rising default rates.

In the first half of 2011, high-yield bonds attracted significant attention from institutional and retail holders alike. According to Lipper, €2.7bn made its way into high-yield bond funds across Europe in May alone as investors chased the higher coupons on offer. However, the sector now faces two major headwinds: performance has been relatively weak compared to other fixed income asset classes and the declining economic climate is likely to raise the default rate, which typically signals deteriorating performance. At the start of the year, high-yield bonds were seen as the one fixed inc...