Current valuations among high-yield bonds leave "little margin for error" despite the fact there are "still some defaults to come", according to several investment professionals, who warn markets have become complacent as economies reopen and central banks remain accommodative.
The urge for caution follows data from Bloomberg and the ICE BofA index published last Monday (19 April), which found that CCC-rated bond yields have hit a record low of 8%. "Covid is far from over - just look at the horrible statistics coming out of India and Brazil at the moment," FundCalibre's Darius McDermott said. "I think there are still some defaults to come." Fraser Lundie, head of credit at Federated Hermes, agreed that valuations across the low end of the high-yield market are now stretched, implying "very low default rates and very little in the way of room for error". ...
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