The hidden return in high yield

September 23, 2026

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Much of the European high yield market is trading below par again - headline yield does not show what a potential early call is worth.

 

Investors typically assess high yield on spread and yield — by convention, yield to worst (YTW). At c.270bps and 6.1%, neither shows what a sub-par callable bond can potentially pay.

68% of the European high yield market currently trades below par, at an average price of 97.4.1 This is the result of higher yields - driven by higher rates - not a credit story, as it may have been in the past.

YTW comprises carry and pull-to-par. For a bond below par that is callable at or above par, the calculation assumes it runs to legal maturity. This spreads the pull-to-par over the longest horizon.

If the bond is called before maturity, the same price gain is earned over fewer years. The realised yield therefore rises above the stated YTW.

Issuers tend to address their maturity walls well in advance, even if the new rate is notably higher. This addresses the risk of needing to refinance into an unreceptive market – funding when they can, not when they must.

However, selectivity still matters. Not every bond will be called. But where refinancing is likely, today's sub-par market offers a potential return that headline yield does not fully capture.

 

"Yield to worst assumes a sub-par bond runs to legal maturity. If called early, the same pull-to-par can be earned over a shorter timeframe, enhancing the available return to investors".

 

References

1. Source: ICE Index Platform, as of 18th September 2026. ICE BofA Euro High Yield Index (HE00).

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Index descriptions

HE00 - The ICE BofA Euro High Yield Index tracks the performance of EUR dominated below investment grade corporate debt publicly issued in the euro domestic or eurobond markets. Qualifying securities must have a below investment grade rating (based on an average of Moody’s, S&P and Fitch), at least 18 months to final maturity at the time of issuance, at least one year remaining term to final maturity, a fixed coupon schedule and a minimum amount outstanding of EUR 250 million.

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