Industry Voice: High yield is finally deserving of its name again

US high yield market is healthiest in years

Gareth Jones
clock • 1 min read
Shannon Ward, portfolio manager at Capital Group
Image:

Shannon Ward, portfolio manager at Capital Group

“High-single-digit yields are renewing investor interest in this asset class, even as the spectre of a recession raises some concerns. High yield is finally deserving of its name again.”

That's according to Shannon Ward, a portfolio manager at Capital Group, who believes it makes sense for investors to build selective exposure to high yield at this moment.

"If the actions of the US Federal Reserve (Fed) are not successful in bringing down inflation, or if they push the economy into a longer, deeper recession, then the high-yield market - and credit and risk assets more broadly - could face a bumpy ride. But that negative scenario might be reflected in prices already," she says.

"And furthermore, if the Fed manages a ‘softer landing', high-yield bonds could rally."

US market - stable and healthy

Even with a softer macroeconomic backdrop, Ward says the US high-yield market appears healthier and more stable than it has been in many years. "We have a weaker economic environment but a stronger asset class, and the combination has resulted in yield spreads that are in line with historical averages."

At the beginning of 2022, US high-yield credit spreads were close to all-time lows at around 300 basis points (bps). Yields were just 4.3%. By November, spreads had increased to around 500 bps and yields more than doubled to over 9%.

Fundamentals have also improved, she explains. Many weaker high-yield issuers defaulted during the pandemic; this, and the fact that the companies that have survived are typically much stronger, has helped increase the overall credit quality of the index.

For more on the prospects for high yield, read our exclusive Spotlight guide

More on Bonds

Prudential tops as preferred onshore bond provider by advisers

Prudential tops as preferred onshore bond provider by advisers

Quilter edges ahead of Canada Life into second place, Defaqto finds

Isabel Baxter
clock 08 April 2024 • 2 min read
Partner Insight: US inflation could hit 2% a year ahead of schedule

Partner Insight: US inflation could hit 2% a year ahead of schedule

Modest rate cuts would be justified in this scenario, says US investment giant

Gareth Jones
clock 17 October 2023 • 1 min read
Partner Insight: Exploring the role of duration in bond returns

Partner Insight: Exploring the role of duration in bond returns

Ongoing volatility in bond markets shouldn’t overshadow the long-term benefits of holding a broad spread of bonds as part of a diversified multi-asset portfolio.

Viktor Nossek - Head of Investment and Product Analysis, Vanguard, Europe
clock 10 August 2023 • 8 min read

In-depth

Women in Financial Advice Awards 2024: All the nominations!

Women in Financial Advice Awards 2024: All the nominations!

More than 1,500 nominations for 792 women from 337 companies

Professional Adviser
clock 08 May 2024 • 21 min read
Addressing the need for fresh talent in the advice industry

Addressing the need for fresh talent in the advice industry

‘Firms must offer compelling reasons for advisers to stay’

Isabel Baxter
clock 01 May 2024 • 9 min read
Juggling two careers: An IFA's journey on and off the basketball court

Juggling two careers: An IFA's journey on and off the basketball court

'Advice and basketball both require teamwork and accountability'

Sahar Nazir
clock 01 May 2024 • 4 min read