High yield bond market retains lustre

Sterling-denominated corporate bonds have performed broadly in line with gilts in 2004, returning 6.1%. However, lower-rated corporate bonds have outperformed gilts by over 1%, as wafer-thin spreads - the average AAA-rated bond yields barely 0.3% more than gilts, while the average BBB-rated issuer offers a more enticing 1.2% - encouraged investors to increase their exposure to riskier assets. But that is nothing compared to the stellar performance by the pan-European high yield (or sub-investment grade) market, which has soared 13.3% so far this year. Historically, interest rate increases...