European high yield supply has endured its weakest start to a year in over a decade. The total supply to May 13th equalled €12.89bn, a fall of 75% year on year, with the market effectively closed for a large portion of the year.

Consumers are being hit from seemingly all angles at the moment. Higher interest rates are coming, higher inflation is already hitting their pockets hard and economic growth is expected to slow.

As inflation continues to outstay its welcome in the global economy, we have previously discussed the impact of rising input costs on corporates and how crucial pricing power can be in such a challenging environment.

The vast majority of the high yield universe used the attractive funding conditions last year to term out their maturity profiles. In fact, 2022 maturities in both US and European high yield equate to just 1% of their respective indices.

The broad-based sell-off that has faced investors since the start of this year has been all the more painful because of the breakdown in traditional correlations, which has put conventional hiding places out of reach.

At the beginning of this year you would have struggled to find a single investment bank or asset manager (ourselves included) that thought owning 10-year US Treasuries (USTs) was a good idea.

Earnings season is now in full swing, and it has undoubtedly been eventful. During the first quarter, companies have had to navigate multiple obstacles, including surging commodity prices, hawkish central bank policies, a Russian invasion, further supply chain disruptions caused by lockdowns in China, and dwindling consumer confidence.

In recent months and years we have seen remarkable growth in the number of ESG-focused or sustainable investment strategies being offered by asset managers, a trend that first emerged in the equity market but is now making itself felt in the world of fixed income.

At TwentyFour, we believe a sustainable investment process cannot just be based on a static view of a company’s ESG practices, it must also consider the direction of travel.