Sovereign risk shakes confidence in high yield new issues

While the credit markets have been resilient to sovereign risk to date, last month finally saw signs of risk aversion creeping into the high yield market

Despite the almost unbroken period of heightened sovereign risk in Europe over the past year, the credit market has generally been able to brush off bad news emanating from the periphery. Trading in May suggested that credit remains strong, although the high yield market finally saw some negative pressure after its lengthy rally.

More broadly, sentiment was knocked by continuing speculation over a Greek sovereign debt restructuring, yet the impact on credit spreads was relatively contained