The historically low rate environment has sent US fixed income investors scrambling for yield, willing to accept a 6-handle coupon on HY new issue bonds. And it's not just the institutional investors. HY ETFs and mutual funds have had quite a run. HYG ETF number of shares outstanding is still at a record high as Wall Street churns more paper to keep up with investor demand. The market looks overbought.
|HYG shares outstanding|
What's surprising however is that the Europeans are also in love with non-investment grade corporate paper. The latest survey of European fixed income investors asked for their most and least favored investment choice. Here is what they got back:
|Most and least favored investment choice (source: Fitch - European Senior Fixed-Income Investor Survey Q212; click to enlarge)|
It is no surprise that they all hate developed market sovereign debt. The largest number of "most favored" went to the "speculative grade" asset class. It's not clear this is such a wise choice, given the Eurozone-wide recession. But with German government yields even lower than those in the US, European investors are faced with the same dilemma as their US counterparts. And the chase for yield continues - even in Europe.