by Richard Barley
Wall Street Journal
August 31, 2011
The European high-yield bond market has been one of the success stories of the postcrisis economy, roughly doubling in size to €150 billion ($216.63 billion) since mid-2007. But August has seen a brutal selloff, hitting stronger credits and weaker borrowers alike. That should mean there is value on offer. But as long as the euro-zone sovereign-debt crisis remains unresolved, this is likely to remain a trade only for those willing to stomach more volatility.
The European market has been hard hit. In August alone, average euro-denominated junk bond prices have dropped to 87.4% of face value from 94.2%, while yield spreads over government debt widened 2.4 percentage points to 8.8 points, data from Barclays Capital shows. In the U.S. the yield gap is 7.3 points, 1.8 points wider in August.