Europe's high-yield learning curve

AFTER THE SHOCKING performance of the European high-yield market between 2000 and 2002, fund managers breathed a sigh of relief when positive gains began to emerge in 2003. Thirty per cent returns across the board last year signalled to many that it was more than a brief upward swing. Fear of volatility began to subside and a broader range of issuers and investors started to enter the market.

In March alone, two records were set. UK cable company NTL issued a £375 million ($666 million) bond, the largest high-yield offering ever in sterling. Less than a week later, Italian directory company Seat Pagine Gialle issued a e1.3 billion benchmark bond, nearly twice the size of the previous largest euro tranche.

But just as the high-yield market seemed to have found new staying power and strong growth, it suffered a grievous blow at the beginning of last month. High-yield bonds...