ECONOMY

European junk bonds gain as growth optimism outweighs Greek woes

Junk-bond yields dropped every day this month as the prospect of an economic recovery in the euro area outweighed concern that policy makers would fail to reach a breakthrough in Greece’s debt talks.

Investors demanded an average 3.8 percent to hold speculative-grade debt in euros on Thursday, within 0.35 percentage point of a record-low reached in May, according to Bank of America Merrill Lynch data. That’s a turnaround from March, when declines in junk bonds saw yields end the month at a seven-week high of 3.99 percent.

“The sentiment in European high yield has been somewhat mixed in the last few weeks as the market has been digesting a healthy supply pipeline and adjusting to headline risks such as the ongoing discussions surrounding Greece,” said Colm D’Rosaria, a money manager in London at Pioneer Investment Management Ltd., which manages about $230 billion.

The European Central Bank has just completed the first month of its 1.1 trillion-euro ($1.2 billion) quantitative easing bond-buying program, which is also helping sentiment for higher-yielding assets. Companies have sold $29 billion of high- yield bonds in euros this year, compared with $85 billion in the whole of 2014, as lower yields encouraged borrowing, according to data compiled by Bloomberg.

Greece’s debt problems have eased this month, and on Thursday the ECB ramped up the emergency funding available to the nation’s banks.

[Bloomberg]