Rising defaults in businesses across the continent are pushing bond yields up - giving investors a tempting, if risky, opportunity.
Corporate bonds continue to provide attractive opportunities for investors who do not mind risk, new analysis has indicated.
F&C Investments said that the European high yield sector was currently offering average yields of 20 percent, with the credit crunch driving up the numbers of company defaults. In this way, a bleak financial outlook pushes returns from corporate debt up, as it is a higher risk for the investor to hold the bonds in these circumstances.
Figures cited by F&C suggested that the downturn was pushing default rates - in other words, the number of firms going bust - up towards ten percent this year.
Andrew Lake, co-fund manager of the F&C European High Yield bond fund, commented: "We are currently seeing some of the highest yields in the history of high yield debt. Average yields of close to 20 percent are more than compensating investors for the risk of rapidly rising defaults."
Around £5 billion of inflows have been marked in the high yield market over January-March 2009, showing that many investors are being attracted by the possible high returns from corporate bonds.
The equity markets have rallied from their lows over recent weeks, on positive bank profit statements and other economic data suggesting that the pace of decline was slowing. However, F&C's current position is considerably more downbeat.
"Our central view [is] that the market's recent strength is premature and the expectation for a rapidly rising default rate," Mr Lake added.
