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Fitch launches high yield default index

Ratings agency Fitch has launched a European high yield default index. The new index will be published on a quarterly basis and complements Fitch’s existing US default series, which spans the entire modern history of high yield in the US.

The high yield eurobond market has grown to around euro43 billion in three years and it is expected to continue growing as more companies tap into high yield bonds to finance leveraged buyouts, restructurings, M&A and other corporate activities in an effort to boost growth and profitability.

Fitch analyst David Staples believes the recent growth of high yield issuance in Europe has created a need for a local measure of default risk and a benchmark to gauge market performance.

He said: “The high yield market has grown, but on a proportional basis to the US, it is still small.” He adds that the European high yield market will continue to evolve, but it is difficult to predict what will happen in this temporary weak economic period.

Fitch calculated default volume of euro3.2 billion to July 31 for the European high yield market and a year-to-date default rate of 6.3 per cent. But there is strong probability that the market will produce a default rate in excess of ten per cent this year.