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European investors are struggling to keep up with inflation. However, European high-yield bonds offer attractive yields, relatively strong credit quality, and short durations. Given our expectations for inflation to fall next year, taking positions in high-yield bonds, once yields have peaked, may allow investors to harvest attractive returns for years to come.

EXPLORE THE SERIES

Our European high-yield bond team discusses the sector’s outlook, potential opportunities, and possible entry points.

Harvesting European High Yield

LEVERAGED FINANCE

Source: Macrobond and PGIM Fixed Income as of December 2022.

COMING SOON

10-year Bunds (YTM)

European corporate investment-grade bonds (YTM)

European high-yield bonds (YTM)

4.12%

2.11%

8.61%

10-year Bunds

European corporate investment-grade bonds

European high-yield bonds

4.45%

2.51%

7.93%

2023 Eurozone inflation 2.8%

2023 UK inflation: 5.5%

PROJECTIONS

Eurozone HICP inflation

UK CPI inflation

Select a point on the line graph for corresponding data.

Eurozone HICP inflation and UK CPI inflation with projections for the years ahead

While yields are currently lower than inflation, we expect this relationship to reverse in 2023. In this scenario, actively selecting sectors and issuers with the ability to withstand inflation can provide compelling inflation-adjusted returns for an extended period of time.

inflation Frustration

2021

2022

2023

2024

year-end estimates