In a period of falling interest rates, yield is valuable, and high yield therefore remains an attractive asset class. However, with increased interest rate volatility and uncertainty around economic growth, Portfolio Manager Seth Meyer says a cautious approach and a focus on strong company fundamentals are warranted.

 

Key takeaways:

  • Current market volatility is the result of renewed trade tensions between China and the US and US Federal Reserve Chairman Jerome Powell’s elusiveness on the topic of lowering rates to support economic growth. Both events are occurring at a time when the US high yield market is at expensive valuations.
  • We believe the swift rise in negative-yielding global debt – now around three times what it was less than a year ago – makes high yield an attractive asset class for investors.
  • However, we are cautious on the US high yield market at current prices, as we think bond markets may be too optimistic on the outlook for the US economy. As such, we believe investors should remain focused on seeking companies with strong fundamentals.