European high-yield (HY) credit spreads have remained notably stable in 2024, a trend Muzinich & Co. attributes to favorable technical factors. The HY market has contracted by nearly 20% since early 2022, primarily due to a higher number of ‘rising stars’ (issuers upgraded to investment grade, IG) outpacing ‘fallen angels’ (IG issuers that have been downgraded to HY). At the same time, this contraction has been accompanied by a substantial increase in demand in 2023 and 2024.

“The technical environment for European HY has been particularly strong over the last couple of years, driven by a shrinking market and a surge in demand. Whilst we have seen signs of earnings pressure and credit deterioration in Q3 earnings, the technical dynamics should continue to be supportive of the asset class, in our view,” said Ian Horn, Portfolio Manager at Muzinich.

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