'The euro high-yield market still has low valuations'

In the short-dated segment, sectors such as automotive and chemicals still offer a wider spread margin than non-cyclical segments, which instead trade on relatively compressed spread levels. In any case, the attractiveness of individual securities remains linked to the characteristics of the individual issuer. We remain cautious on issuers in cyclical sectors and focus on short-term bonds, which are usually protected by existing liquidity. We also favour variable-rate bonds, given the price stability and decent carry. Our final decisions depend on the valuation of the bonds and how they are positioned within the portfolio.

Depending on the development of the credit cycle, we actively manage the allocation between high yield and investment grade, with a focus on high yield. In terms of liquidity, short duration strategies are attractive. In our portfolio, for example, more than 25 per cent of positions generally mature within one year, while another significant portion with longer maturities is refinanced well before maturity. To reduce credit risk, we focus on careful security selection. Short-maturity bonds also give more visibility into the evolution of fundamentals. We do not consider securities with a CCC rating and, in the event of a sudden and significant deterioration in credit quality, we adopt a strict sell discipline.

Our ESG approach rests on two pillars: we exclude companies that violate certain principles, such as the UN Global Compact, or are involved in controversial activities, such as coal mining; we then consider ESG ratings, limiting exposure to issuers with the lowest ratings, in order to achieve a better ESG profile than the investment universe. Even with this rigorous selection process, the investment universe remains broad and diversified.

In light of US tariff policy and the geopolitical environment, macroeconomic uncertainty is likely to persist and the issue of sovereign risk is likely to return. Against this backdrop, we expect uneven corporate results, especially in cyclicals. Default rates in Europe should nevertheless remain below historical averages, while ECB policy should continue to support the Euro High Yield market. Despite already compressed spreads compared to historical levels, these could remain within a relatively narrow range in the second half of 2025, provided there is no macroeconomic deterioration. However, given the asymmetric nature of the risk of widening spreads at this stage, it remains essential to focus on quality issuers and prudent credit selection.