European high-yield debt: the ties that bind
Europe's high-yield bond market has had a roller-coaster ride this year. Hardly had it recovered from last year's Russian crisis when jitters in the equity market and fears of rising US interest rates pushed volatilities to spectacular levels.
To add to these uncertainties, US Federal Reserve chairman Alan Greenspan has made moves - essentially through issuing cryptic statements of his intentions - to stop the markets from overheating. "Greenspan's strategy is to continue to inject into the market some uncertainty about his own actions," says John Wotowicz, European head of high yield at Morgan Stanley.
The result has been that issuers and investors alike have been hanging on his every word in an attempt to second-guess him. And this in turn has led to a stop-start issuance of high-yield bonds.
"The behaviour of the market has been influenced by the Fed's timing of its meetings," says Malcolm Stewart, co-head of European leveraged finance at Salomon Smith Barney. "Since the August Fed meeting, the secondary high-yield market has firmed up, and the European market has been performing better than the US."
Because the European high-yield market continues to rely on US investors, and sometimes US issuers to provide its base, it has been subject to all the vagaries of US interest-rate speculation.