Avoiding landmines: BNPPAM’s Boutaïna Deixonne is optimistic on European high-yield

After an MA in finance from L’Institut d’études politiques de Paris, Boutaïna Deixonne joined AXA IM as a credit analyst in 2003. Since 2009, she has been the head of the firm’s euro investment-grade and high-yield credit team – which is now part of BNP Paribas Asset Management (BNPP AM).  

Alongside, Deixonne utilises her research background to provide coverage for the autos, telecoms and real estate sectors. “In the high-yield space specifically,” she stresses, “fundamental credit research plays a crucial role in guiding our investment decisions.” 

Each credit analyst “conducts a thorough assessment of risk by examining historical financial statements, analysing earnings quality and performing liquidity and cash flow analysis”, Deixonne says.  

A key component of this process involves a detailed analysis of the covenants embedded in each bond’s documentation. “This helps us understand the company’s leeway to optimise or releverage its capital structure, which is vital for assessing resilience and potential vulnerabilities,” she adds. 

Beyond this fundamental analysis, the team performs a relative value exercise. “This involves evaluating the bond’s pricing in relation to our fundamental outlook, while also considering the capital structure, the credit curve, and other risk-return metrics,” Deixonne explains. 

“This comprehensive approach enables us to identify attractive carry opportunities, limit portfolio volatility and avoid exposure to large numbers of defaults or distressed situations. Overall, our process aims to strike a balance between capturing yield premiums and managing downside risk.” 

Current market outlook 

Deixonne thinks the current European high-yield market benefits from its relatively short duration, averaging around three years compared with approximately four at the start of this decade.  

“The all-in yield remains attractive at 5.3%, supporting sustained demand for high-yield assets and underpinning the technicals of the asset class,” she notes.  

Similar to investment-grade bonds, Deixonne believes that spreads are unlikely to tighten much further from current levels. Nonetheless, “yields remain attractive, durations are low, and the prospects for an imminent sell-off in European high-yield appear limited”.  

Companies are generally performing well in Deixonne’s view, as confirmed by earnings in the first quarter of 2026. “Although we expect some impact in Q2 earnings from input cost pressures, and weaker demand stemming from the US-Iran conflict, issuers are actively working to mitigate these challenges, and the overall outlook remains cautiously positive.” 

In more general terms, Deixonne thinks “the European high-yield market benefits from a solid overall quality profile, supported by a high percentage of BB-rated issuers – approximately 70% – and a record high of about 37% of bonds secured. We believe that this favourable strength, especially when compared to the loan market or private credit, should persist in the near to medium term.”  

However, she goes on to say that “it’s important to recognise that dispersion within the high-yield segment remains significant. While many issuers are resilient, some of the weaker pockets of the asset class are genuinely vulnerable – particularly given the higher-for-longer interest rate environment that took hold in 2022, which has proven unforgiving for over-levered capital structures.” Consequently, weaker issuers may face challenges in refinancing and meeting obligations.  

Notably, in Deixonne’s view “such market conditions are not unprecedented in the long-term history of high yield”. She notes that according to indices published by ICE BoA, over the past 20 years, the average default rate for BB-rated bonds has been just 0.5% annually.  

For B-rated bonds, the rate rises modestly to around 1.1%, while CCC-rated bonds experience a much higher default average of approximately 6.2%. “Applying a disciplined, fundamental-based approach to credit selection – focused on avoiding landmines – has always been and remains essential to managing risk in the high-yield space,” she says.  

Future risks mitigated by selectivity 

But that said, Deixonne worries that “late-cycle credit deterioration presents a primary risk for the high-yield market over the next 12-24 months. Regarding default, while we do not foresee a material spike in default rates in the near term, it’s worth noting that lower-rated credits are already showing signs of tension, and this situation could intensify if macroeconomic conditions deteriorate further.” 

In addition, she flags the “persistent negative headlines surrounding private credit” and “growing concerns over the underlying asset quality”.  

At this stage, Deixonne takes comfort from the fact that “contagion channels into the European high-yield market are rather limited while the incremental default risk from AI disruption in European high-yield should remain modest. Nevertheless, the overlapping investor base combined with a downturn in asset quality could spill over into the public high-yield space via tighter financing conditions, which would potentially impact the market.”

In terms of sectors, the team “maintains a selective approach within the “B” rating bucket”, favouring defensive sectors such as healthcare, telecoms, utilities and services.  

Conversely, Deixonne says, “We are more discriminating in [the] retail, gaming and automotive sectors, and we do not favour high-yield real estate credits due to high loan-to-value ratios, small portfolio sizes and limited diversification.  

“Overall, while near-term spread tightening may be limited, the combination of attractive yields, low duration and resilient fundamentals supports a cautious but constructive view on European high yield.”