Higher Yields in European Credit

Since early March, bond markets have seen rising yields and widening spreads. The conflict in Iran has indeed triggered a resurgence of inflationary risk linked to the sharp rise in oil prices. All maturities have been affected by this move, particularly shorter ones.

For example, the German 2‑year yield rose by 62 basis points in March to 2.62%, while the 5‑year yield increased by 48 basis points to 2.73%. At the same time, European High Yield spreads widened by 75 basis points to 349 basis points as of March 31, resulting in a broad increase in yields across the credit universe.

Our analysis

These moves have strengthened the appeal of credit markets from a long‑term carry perspective. In particular, yields offered by “high income” segments – such as High Yield and AT1 – have moved back above 6%.

For investors, holding bonds to maturity can help look beyond the current macroeconomic uncertainty and translate the yield to maturity into an average annual return over the life of the investment. We believe current levels are likely to offset inflation risk and default risk over the coming years.