EUR corporate high yields 2026: Slight spread narrowing expected

Although the HY spread level is currently relatively low and the cycle of key interest rate cuts has ended, removing this positive influencing factor, we expect HY spreads to narrow slightly in 2026. Apart from the progress of US trade talks, spread development in the medium term will depend on economic developments. We expect solid economic growth in the eurozone of +1.1% in 2026 (2025e: +1.4%). Support is likely to come from the substantial EU-level spending packages for defense and infrastructure in Germany. This should have a positive impact on the credit profiles of HY companies.

The fundamentals of HY companies and key credit metrics have improved slightly recently, partly due to lower (re)financing costs. However, these will only decline slowly in 2026 because the interest rate cut cycle has already ended. A positive factor for spreads is that refinancing requirements in the HY segment will be relatively low over the next two years. This is because companies already took advantage of the more favorable conditions on the primary market during the years of extremely low interest rates and were thus able to successfully extend the maturity profiles of their financial liabilities.

Despite the increase in the default rate during the last six months of 2025, Moody's assumes in its baseline scenario that it will decline again from February 2026 and reach 2.4% at the end of November 2026.

Within the HY rating categories, we continue to recommend BB bonds. These have the strongest credit metrics. However, if geopolitical risks intensify, increased spread volatility is to be expected.

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