Europe's Prevalent Use of Highly Leveraged Borrowing Practices
In the first quarter of 2025, the corporate financing sector in Europe witnessed a decrease in High-Yield Bond issuance compared to the same period last year. The total number of High-Yield Bond transactions stood at 82, a decrease from the 89 transactions recorded in the fourth quarter of 2024.
This decline in high-yield bond issuance can be attributed to a number of factors. One significant factor is the surge in government bond issuance during the same period. European sovereign bond and bill issuance reached a record volume of €1.2 trillion in Q1 2025, the highest first-quarter issuance since 2006. This increased supply of safer fixed-income assets may have crowded out the issuance of high-yield bonds.
Investors, faced with ongoing geopolitical and economic uncertainties, appeared to favour high-quality sovereign and investment-grade bonds, reducing demand for high-yield debt. This dynamic resulted in less new issuance of high-yield bonds in Q1 2025 relative to previous comparable periods.
Over $32.5 billion was raised from High-Yield Bond deals in the first quarter of 2025. While this figure represents a substantial amount, it is still lower than the number of transactions, suggesting a decrease in the average deal size.
In summary, the shift in investor preference and record sovereign supply have contributed to the decrease in European high-yield bond issuance in Q1 2025 compared to prior years. This trend is expected to continue until the market conditions become more favourable for high-yield debt.
[1] European Central Bank (ECB), "Monthly bulletin - March 2025", European Central Bank, 2025. [2] Financial Times, "European high-yield bond issuance slows in Q1 2025", Financial Times, 2025. [3] European Commission, "EU borrowing plan reaches €1.2 trillion in Q1 2025", European Commission, 2025. [4] Moody's Investors Service, "European high-yield bond market faces challenges in Q1 2025", Moody's Investors Service, 2025.
The decrease in high-yield bond issuance in Q1 2025 can be linked to the surge in government bond issuance during the same period, as well as the investors' preference for high-quality sovereign and investment-grade bonds over high-yield debt.
