Fixed-income investors may want to take a look at European junk bonds and international debt-related exchange traded funds to diversify an investment portfolio and generate attractive yields.
While there are no U.S.-listed Europe region-specific bond ETFs available, investors can still gain exposure to the area’s high-yield bond market through international bond ETFs. For instance, the Market Vectors International High Yield Bond ETF (NYSEArca: IHY) includes about 56.2% exposure to European debt, iShares Global ex USD High Yield Corporate Bond ETF (NYSEArca: HYXU) includes a 84.4% exposure to European countries and SPDR Barclays International High Yield Bond ETF (NYSE: IJNK) holds 75.6% European bonds.
The high-yield bond ETFs come with attractive income opportunities. IHY shows a 6.68% 30-day SEC yield, HYXU has a 4.48% 30-day SEC yield and IJNK has a 5.72% 30-day SEC yield.
Some bond observers point to European speculative-grade bond market’s low exposure to troubled energy companies as a major selling point for investors.
“There’s one major difference between the two — almost no energy company has issued in the European high yield market,” Henrik Johnsson, head of European high yield at Deutsche Bank, told the Financial Times. “We’ve been very insulated from what’s gone on in the US.”
With the oil and gas industry accounting for about a fifth of U.S. high-yield debt outstanding, defaults appear more likely as companies that borrowed when oil traded at $100 per barrel begin to struggle to adjust to a low oil environment.