High Yield: a comparison between the United States and Europe
U.S. High Yield has outperformed its European counterpart and is now trading at relative highs. With a statistical pattern that favors mean reversion, however, conditions appear supportive of a rebalancing in favor of Europe.
The Federal Reserve has cut rates by 175 basis points since September 2024, bringing them to 3.50%–3.75%. The market is pricing in an additional 1–2 cuts in 2026, toward 3.00%–3.25%. The ECB, by contrast, has kept rates unchanged at 2.0% since July 2025. Lagarde has stated that monetary policy is in a “good place.” The rate differential (around 150 bps in favor of the U.S.) is narrowing, but remains meaningful.
This divergence has direct implications for corporate credit. U.S. companies refinancing their debt face higher costs, while European firms benefit from greater stability. There is, however, a flip side: if the Fed is cutting, it is because it sees clouds on the horizon—particularly in the labor market. The ECB is standing pat because it can afford to, not because the European economy is especially strong.
Comparing the U.S. High Yield ETF (HYG, trading at $80.72) with the European one (IHYG.MI, at €93.68) reveals an interesting picture. The ratio between the two is at its highest level of the past two years.
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Data as of February 3, 2026.
This analysis is provided for informational purposes only and does not constitute investment advice or a solicitation to invest. The High Yield market involves significant risk of capital loss.
