All Bubbles Do Finally Burst—European Junk Hits The Skids

As Bank of America’s Barnaby Martin writes in his latest research note, in stark contrast to shrinking US spreads, European high-yield spreads have blown out by 70bp wider, with total returns just +13bp, a far cry from the average annual returns of +11% observed over the last decade. Putting this dramatic reversal in context, at the start of the year Euro HY spreads were 80bp tighter than US spreads. Now they are 35bp wider, in large part due to the deterioration in the Italian backdrop, concerns about the end of the ECB’s QE and the recent deterioration in the European economy.