GLOBAL - Institutional investors traditionally focused on US high-yield bonds are set to look increasingly at the European market as they adjust their risk appetite, according to State Street Global Advisors (SSgA).
Kevin Anderson, global CIO for fixed income and currency at SSgA, said the European high-yield market was growing rapidly and had become increasingly liquid.
He pointed out that European banks were still in the process of deleveraging their balancing sheets, which had led to a contraction in the lending market.
"The lack of debt provided by banking institutions means more and more corporates will be forced to move into the bond market in the coming years as a way of seeking alternative sources of financing," he said.
"The fact banks will be more cautious to provide debt - added to the fact more companies will step into the bond market - will expand the set of opportunities for institutional investors in Europe."
Over the long term, he said, the European high-yield bond market should become as liquid as its US counterpart.
Last month, Barrie Whitman, executive director of high yield at Threadneedle, argued that European investors were still "immature" when assessing the risk in the high-yield bond sector.
He acknowledged, however, that their rapid move into investment-grade debt would help them to "think rationally" about the asset class.