Europe’s Junk Bond Rebound Is at Odds With Economic Reality

For all the signs pointing toward recession in Europe, the junk bond market is acting like there’s not much to worry about.

European high-yield bonds have returned 3.9% this year, according to a Bloomberg index, and the premium that investors demand to hold the risky debt is well below levels that have historically signaled an economic contraction.

Part of the reason for the strong performance is down to market technicals. Fewer companies are selling junk bonds, so demand for debt is outstripping supply. Bank of America Corp. strategist Barnaby Martin says that’s masking deeper problems for credit.

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