European market outlook to improve

European high yield bonds have had a disappointing past 18 months with spreads over German bunds exceeding 1000 basis points recently. But, looking forward, the market is set to improve. From a macro point of view, since November 1999 the European Central Bank has raised rates from 2.5% to 4.75%. Higher rates are expected as the ECB attempts to combat inflation, which has been fuelled by the weak euro and high oil price. However, there are already signs of slowing activity, which suggest rates should not go much further, especially when the direction of both the oil price and, apparently,...