Author: Anja Helk As investors load up on European high-yield bonds they are faced with problems in every direction. Credit portfolio models are unreliable because of the lack of data on everything from default rates, rating downgrades, recovery rates and correlation between assets. Only when European corporates have been through a severe crisis will the required performance data be available. Anja Helk reports
Delegates at Euromoney’s Global Borrowers and Investors Forum nodded in agreement as Brian Lawson, global head of fixed income at ABN Amro, claimed that: “Good credit research is imperative. Analysis is a source of value.” Shopping for relative value in the new corporate Europe requires that credit risk be assessed more accurately and efficiently than ever before.
But as European bond investors struggle to come to terms with the new world of credit, it is worth asking whether they do in fact need to hire large numbers of highly paid analysts to crunch the balance sheets and income statements of each individual issuer. Are there no shortcuts? Can investors replace analysis of individual credits with broader, more strategic sector analysis and asset allocation models? The answer partly depends where on the credit curve they are buying.