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As European corporate bond yields strengthen and the relevance and value of impact bond investing become more widely understood, Insight Investment1 ESG portfolio manager, Fabien Collado, explores the wider market landscape for these fixed income investment assets.

Key points

  • After a challenging 2022 the overall yield level for European corporate bonds is now more attractive
  • Renewable energy roll out could become one of the most important drivers of impact bond growth in the European corporate impact bond space
  • Investor interest is building in the European corporate impact bond sector

How are European bond markets performing?

Collado: Although last year was a very challenging period for fixed income investors, many investors have since taken a view that it is now a good time to explore opportunities in fixed income. While interest rate rises - and the noise that surrounds them - have led to some market volatility and vulnerability, the positive news is that the overall yield level for the asset class is now more attractive. Technicals in the market are strong and demand for credit remains solid. This is encouraging more investors to take a serious look at fixed income assets, including European corporate bonds and impact-based investment. 

Is this a good time to invest specifically in European corporate bonds/impact bonds?

Collado: Yield levels have risen and are now reaching levels we haven’t seen in a long time, especially in Europe, where investors have endured a very long period of low yields. If you look purely at the spread component, which is what investors in the asset class are trying to capture, levels look really encouraging. There is still some uncertainty, especially  in some fixed income sectors, such as real estate for example, but we are seeing some attractive entry points on credit spreads for fixed income investors across the breadth of the European corporate bond/impact space. 

What benefits can exposure to European corporate/corporate impact bonds bring to investors? 

Collado: Given where we are in the market cycle, we believe higher grade quality credit assets are probably a safer place to invest than in more risky assets. Investment grade corporate credit tends to be less cyclical in nature and less vulnerable to downgrades. We also continue to see healthy levels of issuance. A key advantage of the European impact bond asset class is that it is still fairly well correlated with the overall market and enjoys similar sensitivity to credit and interest rate movements as more conventional European corporate bonds. We believe impact bonds offer a strong degree of transparency on the projects they invest in and finance. Clear impact key performance indicators are also one of the key benefits of investing into impact bonds.

How does the European impact bond market differ from other sustainable bond offerings?

Collado: There is a degree of maturity and existing strength in the European corporate impact bond market. The share of impact investment products in the Euro corporate sector remains robust and its popularity continues to grow, despite some of the pressures which have faced wider fixed income markets over the last 18 months. Primary issuance levels are healthy in the market and impact bonds can allow investors to access some attractive returns while, in many cases, making a truly measurable impact. The actual share of impact bond issuance in the wider European corporate bond market is strong as we continue to see new issuers and new sectors coming to the impact bond primary market 

What sectors do you expect to see growth in impact bond issuance and investment in and why?

Collado: While impact bonds can deliver beneficial results across a range of sectors we believe renewable energy and its roll out will be one of the most important drivers of impact bond growth in the European corporate impact bond space. Post 2022 and the Russian invasion of Ukraine, increased awareness of the need for energy security and safety in Europe massively ramped up the requirement for renewable energy in the region. 

Renewable energy utilities were actually some of the first companies to issue impact debt assets in Europe and this is a fairly well-established market. We believe this entire sector holds significant room for growth. The ongoing move away from using fossil fuels to generate energy means we will need to continue to strengthen renewable capabilities in Europe. Beyond utilities, European banks also issue a lot of green bonds as they also support the funding of  renewable projects as well. This is not a new area for investors but it is one where we expect to see continued growth.

Are there any sectors you are more cautious on?

Collado: The European property investment market has seen some mixed fortunes in 2022/23, with large parts of the sector performing extremely poorly on the back of rising interest rates. This sector is highly relevant to impact bond investors as it has seen a tremendous amount of green bond related issuance in recent years. Overall, while we believe the sector holds significant potential for careful stock selectors, we also believe it merits some degree of investor caution. We have seen evidence of ‘greenwashing’ in the sector, with some issuers appearing to overstate their green credentials.  At a more fundamental level some investors and analysts also believe there is too much leverage in the sector at a time of rising interest rates. 

How optimistic are you about the market outlook for 2024?

Collado: I am optimistic for the market because there seems to be more and more interest developing in the European corporate impact bond sector. We see genuine evidence investors are rethinking their approach to fixed income and credit and believe there will be a profound market shift in attitudes. When interest rates finally stabilise we believe people will come back into the fixed income asset class, creating a more positive environment for impact bond investing in European corporates. 

How high are default rates in the market and what does the outlook hold on this front?

Collado: Default rates in the European corporate bond sector are currently quite low and certainly lower than in the high yield space. That said we face a financial environment which we believe will be completely different from that of recent years, one where credit research will matter even more going forward. We will not be in a position where central banks can simply step in to buy assets to the same degree they did in response to the global financial crisis. From an active investment standpoint selecting the right assets will become even more important than it was in the recent past. It also pays to expect the unexpected. In the property sector we have seen some companies go bad very quickly during the last 12 months and it is really important to select stocks and exposure carefully to avoid getting caught up in developments like this. 

Fabien Collado is an ESG portfolio manager at Insight Investment.


Fabien joined Insight’s Fixed Income Group in August 2021, as an ESG portfolio manager. Prior to joining Insight, he spent almost 12 years at AXA Investment Managers, initially as a portfolio engineer. He was then an active fixed income fund manager focussing on euro credit strategies. Latterly, he was a global buy and maintain fund manager, with an ESG focus. Fabien graduated with a Masters degree in Finance from IÉSEG School of Management. He is also a CFA charterholder.

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1 Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA), BNY Mellon Fund Managers Limited (BNYMFM), BNY Mellon Fund Management (Luxembourg) S.A. (BNY MFML) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA, BNY MFML or the BNY Mellon funds
1631502 Exp: 16 May 2024

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