The yield on European high-yield bonds is not so high any more (compared to stocks)
Traditionally, investors have relied on fixed-income securities to generate income from regular coupon payments. Equities, by contrast, were meant to provide price gains, and to increase in value, with dividends only providing a little extra income. In recent times, however, things have changed. We have witnessed an unprecedented decline in yields, which has produced big price gains for bonds. Subsequently, even yields on high-yield bonds are below equity dividend yields. Our "Chart of the Week" demonstrates this development for European markets. These low yields, resulting from low risk premia on high-yield bonds, can be justified given the favorable economic environment combined with low default rates. Higher income, however, can be achieved by investing in equities.
Europe: Dividend yield versus yield on high-yield bonds
Sources: Bloomberg Finance L.P., Deutsche Asset Management Investment GmbH; as of 8/23/17
*MSCI Europe; **BofA Merrill Lynch European High Yield Index
