European Junk Bond Issuers Opt for Fixed-Rate Debt to Reduce Financing Costs

Europe's High-Risk Borrowers Seize Cheaper Fixed-Rate Bonds Amid Interest Rate Hike Fears

High-risk borrowers in Europe are taking advantage of cheaper fixed-rate bonds to refinance floating-rate debt, cutting costs and buying protection against the risk of interest rate hikes. An increasing number of companies have switched into fixed rates in recent weeks, tapping a deeper and more liquid market that currently offers a lower all-in cost than floating-rate products.

According to data compiled by Bloomberg, non-financial firms have issued at least €11.5 billion ($13.4 billion) of fixed-rate high-yield debt so far in April, a level of activity not seen since September 2025. This surge in fixed-rate bond supply has been met with pent-up investor demand, with nursing home company DomusVi SAS launching a €500 million bond to partially repay a €2 billion term loan on Wednesday.

Fixed-rate bond supply has been in short supply lately, leading to a build-up of investor demand. "Fixed-rate bond supply has been quite short of late, so there’s some pent-up investor demand that borrowers might be able to hit," said Chris Ellis, a high yield portfolio manager at BNP Paribas Asset Management.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

When interest rates are rising, fixed-rate bonds typically offer investors a premium to account for future hikes. However, that premium is not yet showing up in junk deals, according to bankers. The alternative junk-rated asset class – leveraged loans – is relatively more expensive because collateralized loan obligations, the biggest buyers of floating rate debt, are demanding higher yields to take account of war-related volatility.

Comparison of Fixed-Rate and Floating-Rate Debt Costs

The discount on fixed-rate borrowing may also reflect uncertainty over the future path for benchmark rates, given the difficult trade-off between inflation and growth facing policymakers. Some junk-rated European companies are taking advantage of this uncertainty to refinance early.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Refinancing early is becoming a trend in the high-yield market. Construction equipment rental provider Kiloutou last week refinanced some of its floating-rate notes due 2030 with fixed-rate bonds and new floating-rate notes. Lottomatica, an Italian gaming company, redeemed floating rate notes due 2031 with a fixed-rate bond priced at 4.625%. Meanwhile, TDC Brands priced a €550 million fixed rate bond at 8%, cheaper than the alternative floating rate instrument would have been.

It's unclear how much longer the window will remain open, as oil prices hit peaks not seen since Russia invaded Ukraine in 2022. Markets may have a better idea of how aggressive the ECB will be in pushing up rates after its meeting later Thursday. "Investors may feel comfortable over the next six to eight months, but there is an underlying question of whether they are truly being compensated for the risks over a longer horizon," said Catherine Braganza, high yield portfolio manager at Insight Investment Management.