Source: ICE BofA US High Yield Index, OAS (Ref: H0A0), ICE BofA Euro High Yield Index, OAS (Ref HE00) as at June 2025. Past performance is not a guide to future performance.
Higher credit quality, lower default risk, attractive valuations
As European HY has evolved, not only has it expanded but it’s credit quality has improved too. European HY has a higher concentration of BB rated bonds and fewer CCC rated issuers than US HY. Comparing average credit ratings, the ICE European High Yield Index is rated BB-, while the ICE BofA US High Yield index carries a lower average rating of B+.
While European HY is diversified across sectors, US CCC bonds also tconclude to be concentrated in energy sectors that can be more volatile, adding additional risk.
As a result, the higher credit quality, combined with strong fundamentals, has translated into lower default rates. The average default rate for US HY is 3.5%, while for Europe it stands at 2.6%.
Despite its higher credit quality, European HY currently offers higher yields than US, when hedged to euros. The yield-to-worst of the EUR HY index stood at 5.36%, compared to 4.68% for the US HY index when hedged to euros as at 30 June 2025. This presents a good opportunity to earn more without taking on additional credit risk, a rare opportunity for investors seeking both quality and yield.
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