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After five years of stellar performance since the financial crisis, there is much talk at present about a supposed bubble bursting in the European high yield market.
The BofA Merrill Lynch European High Yield Constrained index returned 165%, outperforming the stockmarket by over 40% (FTSE World Europe index). Spreads have tightened more than 1700 basis points to approximately 350 bps over the German Bund. After such a buoyant period it is hardly surprising that concerns are emerging about the future trajectory of the asset class (source: Bloomberg). Though yields are at all-time lows and Aberdeen expects returns to be more muted, we do not adhere to the argument that the asset class is a bubble for a number of reasons.
Tight valuations are not...
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