In 2024, European bonds delivered positive performance across the board. Higher yielding securities stood out, fuelled by a combination of high carry and compressing risk premia. Corporate high yield gained 8.46% on average and endured only moderate volatility, while European €AT1s rallied 14.26%.
The investment grade segment, after treading water for six months, performed well in the second half of the year and climbed 4.66%. Sovereign debt returned just 1.76%, penalised by rising yields at the end of 2024.
Our analysis
In 2025, while we see little potential for further narrowing in credit spreads, we believe that returns on high yield and subordinated financial debt remain attractive, underpinned by average carry levels of around 5 or 6%. Noteworthy is that average maturities on outstanding securities in these segments are short (spread duration of 2.5 for high yield and 3.7 for financial debt). This means that they are less exposed to interest rate fluctuations than the investment grade and sovereign debt segments, where average maturities are longer.
In 2025, the ECB is likely to ease monetary policy. Lower interest rates are good news for relative bond performance and will create new opportunities as yield curves steepen.
Written on 10 January 2025. Opinions subject to change. This document has no pre-contractual or contractual value. It is provided for information purposes. The analyses and/or descriptions contained in this document should not be considered as advice or recommendations from Lazard Frères Gestion SAS. This document does not constitute a recommendation to buy or sell securities, nor does it encourage investment. This document is the intellectual property of Lazard Frères Gestion SAS - 352 213 599 RCS Paris 25, RUE DE COURCELLES - 75008 PARIS
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