The fundamentals are unchanged for growth of the EMEA high-yield bond market – but current market turmoil shows the road will be bumpy, according to Moody’s.
Highlights from Moody’s Special Comment:
- The fundamental drivers for increasing bank disintermediation remain intact, despite the current turmoil in the capital markets and the apparent recovery of bank risk appetite.
- Adequacy of funding liquidity remains a key credit and rating driver for many high-yield companies, which need to remain cognisant that market access can dry up, as they consider their refinancing plans.
- Although Moody’s forecasts that the Europe, Middle East and Africa (EMEA) high-yield default rate will fall to 2.5% in the next 12 months from 9.6% in January 2010, a period of reduced capital market access is an important factor that could contribute to a more pessimistic downside forecast of 7%.
Following some recovery in Q4 2009 and the early part of January, the EMEA capital markets are currently in a period of turmoil as a spillover from concerns over sovereign creditworthiness and possible longer-term implications for the financial structure of the EU.