European junk bonds posted highest returns after financial crisis

Investors who bought high-yield corporate debt made 100% on their money over the last 10 years

Aug 15, 2017 @ 12:41 pm

By Bloomberg News

If you'd bought European high-yield bonds the day the global financial crisis erupted, closed your eyes and held onto them through the unprecedented events of the following decade, you would now be sitting on a 100 percent return.

On the other hand, if you'd put your money in most major commodities, other than gold, you would have lost 50 percent. The euro and European stocks would have handed you a loss, but most bond markets, U.S. stocks and the dollar would have been a good bet.

Bond markets subsidized by the world's largest central banks with asset-purchase programs that swelled to almost $14 trillion may help explain why debt to Europe's most leveraged companies came out on top. With European Central Bank President Mario Draghi promising to do "whatever it takes" to hold together the euro zone, investors were emboldened to lend to the riskiest companies while yields on government debt turned negative.

Healthy returns in major global assets -- including those that helped spark the financial crisis -- are among the "great ironies" of the past decade, Jim Reid, global head of credit strategy at Deutsche Bank AG, said in a research note last week.

Of course, the moves weren't straight up. The euro tumbled 14 percent and the S&P 500 lost as much as 57 percent from its 2007 record before tripling in the eight years starting in 2009. The Bloomberg Barclays Pan-European High Yield Index lost 38 percent in 2008.

Yet covered bonds, which are backed by pools of assets including mortgages, posted positive returns every year of the past 10, ending the decade 47 percent higher, according to Bank of America Merrill Lynch index data.

The market meltdown that hobbled banks from Citigroup Inc. to Royal Bank of Scotland had its unofficial start in August 2007, when BNP Paribas SA suspended three investment funds with exposure to U.S. subprime mortgages.


What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video


Diversity & Inclusion Awards: 2018 nominations are open

Editor Fred Gabriel and special projects editor Liz Skinner discuss the nomination process for InvestmentNews' inaugural Diversity & Inclusion awards.

Latest news & opinion

Cetera reportedly exploring $1.5 billion sale

The company confirmed it's talking to investment bankers to 'explore how to best optimize [its] capital structure at lower costs.'

SEC Chairman Jay Clayton outlines goals for a new fiduciary standard

Rule should provide clarity on role of adviser, enhanced investor protection and regulatory coordination.

Advisers bemoan LPL's technology platform change

Those in a private LinkedIn chat room were sounding off about fears the independent broker-dealer will require a move to ClientWorks before it is fully ready.

Speculation mounts on whether others will follow UBS' latest move to prevent brokers from leaving

UBS brokers must sign a 12-month non-solicit agreement if they want their 2017 bonuses.

Maryland jumps into fiduciary fray with legislation requiring brokers to act in best interests of clients

Legislation requires brokers to act in the best interests of clients.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print