Bond investors should look to europe for the best bargains in 2025, blackrock says

Investors looking for a little extra yield from corporate bonds should consider adding exposure to Europe instead of the U.S., according to BlackRock. In its 2025 outlook, the BlackRock

Investment Institute said its experts preferred to be selective in fixed income overall but with a preference for European credit over the U.S. That could seem like a surprising call, given

Europe has long lagged behind the U.S. in economic growth. However, the bond market in Europe seems to be in good shape despite that, said Amanda Lynam, head of macro credit research.

"European credit has held in remarkably well both relative to the U.S. but also, within European credit, high yield has outperformed [investment grade]. So the market within Europe is

not reflecting significant growth risks," Lynam said. Valuation is another big component of the BlackRock view. European high yield is trading roughly 100 basis points, or 1 full

percentage point, cheaper than that of the U.S., versus 15 bps on average in the five years pre-pandemic, said Wei Li, BlackRock global chief investment strategist. Investment grade debt is

also cheaper in Europe. There are some "structural tailwinds" in the European debt market, Lynam said. The market is much smaller than its U.S. counterpart, and the European

Central Bank still holds some of that corporate credit from previous bond-buying episodes. There are also some U.S. firms that sell debt overseas, so it is not purely exposed to the

prospects of Europe. "There are a few kind of counteracting forces that keep that market quite resilient despite some of the growth weakness that we've seen," Lynam said. An

increase in global tariffs could complicate the story of economic growth around the world, Lynam acknowledged. How to play it Getting exposure to European debt could be tricky for U.S.

investors, as there are no major exchange-traded funds that focus explicitly on that sector. However, there are some funds on the market with a heavy concentration in that area. For example,

the SPDR Bloomberg International Corporate Bond ETF (IBND) and Invesco International Corporate Bond ETF (PICB) have more than 70% of their exposure to Europe, including the U.K., according

to the websites for the funds. The iShares International High Yield Bond ETF (HYXU) has more than 80% of its exposure to Europe, according to its website, though the fund only has about $50

million in assets. Of those three funds, HYXU has performed the best this year, with a total return of about 2%, according to FactSet. The fund also has the highest 30-day SEC yield at

4.90%. Yields from foreign debt can be affected by currency markets. Investors could also look for active funds where the managers share BlackRock's view and are adding exposure to

European debt.