This year has seen bank debt outstrip high-yield returns in both Europe and the US, up 8.4 per cent year to date, versus 3.9 and 4.8 per cent respectively. Given all of these drivers, there is potential for this to continue.
However, the importance of credit selection is becoming increasingly important given the high level of idiosyncratic risk. As we have seen recently in Spain, bail-ins are a very real threat. Equally, on the positive side individual issues are increasingly benefiting from being called by banks during capital stack restructurings. This offered investors returns quite separate from underlying fundamentals.
For those willing and able to enter the space, the mooted rewards could be worthwhile.
Jon Mawby is a portfolio manager at Man GLG