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 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 that it will continue to grow as more companies tap into high yield bonds to finance leveraged buyouts, restructurings, mergers and acquisitions and other corporate activities in an effort to boost growth and profitability.
Fitch analyst David Staples believes that 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 31 July for the European high yield market and a year-to-date default rate of 6.3%. But there is strong probability that the market will produce a default rate in excess of 10% this year.