The depth and breadth of the global high yield universe has developed apace in recent years, as investors are attracted to its defensive characteristics and low correlation to other asset classes.
Expansion has come largely from Europe and emerging markets, with some believing the asset class of being capable of delivering equity-like returns with low volatility.
The biggest risk to watch out for in the second half of this year is political uncertainty. US presidential elections, the aftermath from Brexit which has the potential to affect not just the UK but the whole of Europe, and the threat of further yuan devaluation could drive volatility in commodity and other risk assets.
But some believe the consequence of populist politicians being elected across the globe is likely to be lower growth, lower interest rates and more QE which should tend to be supportive for higher yielding bonds.
Focusing on the UK, companies may be likely to pause or reduce their investment programmes until they have greater certainty about what happens next – and that will no doubt slow growth……but isn’t slow growth is exactly what bond markets like?
The European Central Bank continues to print money and is buying investment-grade corporate bonds in the secondary market thus driving their yields lower and forcing yield-hungry investors into the high yield market.
Fixed income investors face some difficult choices against this backdrop with the challenge being widely acknowledged that yields are at momentous lows and are unlikely to rise any time soon.
CAMRADATA’s roundtable will discuss these wider issues and debate the topic of “How best to invest in High Yield”.
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