EMEA high-yield suffers worst month since 2009

European Union

The amount of high-yield — and high-risk — debt issued in in Europe, the Middle East and Africa last month slumped to a seven-year low, Moody's Investors Service said on Thursday.

$1 billion's worth of high-yield bonds — those with a non-investment grade or "junk" credit rating — were launched in January, compared with $14.9 billion in January 2015. 

"High-yield market activity has dwindled even further due to rising equity market volatility, the slowdown in emerging markets led by China, and currency volatility," Peter Firth, a Moody's associate managing director, said in a news release on Thursday.

"We expect that activity will come in spurts throughout 2016, particularly for issuers with weaker credit profiles or exposure to industries, like oil and mining, under pressure," he added.

Non-investment grade bonds come with a higher yield — or promised return — because of the heightened risk of the issuer defaulting.

Moody's said that multiple speculative-grade companies in the EMEA region were suffering because of lower commodity prices, with the share of issuers rated B3-negative and below (the low end of junk grade) rising.

The year could see more "falling angels" — junk-rated issuers that were once investment grade — which could broaden the investment universe for high-yield investors.

However, Moody's noted that in the majority of corporate sectors, the outlook remained stable with relatively low refinancing risk. It forecast earnings growth in most sectors, particular consumer-facing industries.

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