Moreover, overseas debt securities are more likely to strengthen as diverging monetary policies begin to affect the fixed-income markets. In the Eurozone, the European Central Bank is engaged in quantitative easing while the Federal Reserve is more likely to hike interest rates in the coming months.
“The market is assuming that the Fed will move as soon as it thinks it is appropriate, while in Europe the assumption is that there could be another round of quantitative easing,” Mathew Cestar, co-head of global credit products in Europe, the Middle East and Africa for Credit Suisse, told the Financial Times.
Moreover, while the European high-yield debt market is less developed than that of the U.S., the immaturity in European junk bonds means that the market is filled with higher quality debt, with about 62% of issuers ranked at the BB-rating, or toward the upper end of the quality spectrum, according to Morgan Stanley. In contrast, U.S. speculative-grade issuers are distributed further down toward CCC-ratings.
Looking at the international high-yield bond ETF credit qualities, debt securities also lean toward the upper end of the quality spectrum. For instance, IHY includes 60.1% BB, 27.3% B and 4.5% CCC. HYXU holds 61.9% BB, 31.9% B and 4.7% CCC.
For more information on the fixed-income market, visit our bond ETFs category.
Max Chen contributed to this article.