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The case for high yield bonds
What are high yield bonds and why should investors consider them?
31 Aug 2022
1 minute read
1 minute read
Key takeaways:
- High yield corporate bonds have historically offered an attractive source of yield, which in turn has contributed to competitive total returns.
- Occupying the centre ground between investment grade bonds and equities from a risk-return perspective, they offer the potential for diversification in a portfolio and have historically been less sensitive to interest rate risk.
- Given the high degree of idiosyncratic risk in high yield bonds, it is an asset class that can reward good security selection.
In this ‘case for high yield bonds’ document we cover several of the factors that make the asset class potentially attractive to investors, particularly for those who are prepared to accept volatility and hold for the long term. We also recognise some of the key risks that the asset class faces alongside the potential opportunities.
The high yield bond market is in an integral part of the fixed income universe, having its origins in the US more than 40 years ago. Today, the US$2 trillion global high yield market comprises a vast range of issuing companies, from large enterprises through to small and medium-sized companies that are raising funding via the bond markets for the first time.1 This creates a diverse mix of issuers that can reward strong credit analysis.
1Source: Bloomberg, full market value of ICE BofA Global High Yield Index in US dollars, as at 30 June 2022.
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31 Aug 2022
1 minute read
1 minute read
Key takeaways:
- High yield corporate bonds have historically offered an attractive source of yield, which in turn has contributed to competitive total returns.
- Occupying the centre ground between investment grade bonds and equities from a risk-return perspective, they offer the potential for diversification in a portfolio and have historically been less sensitive to interest rate risk.
- Given the high degree of idiosyncratic risk in high yield bonds, it is an asset class that can reward good security selection.