Portfolio Managers Seth Meyer and Tom Ross join Adam Hetts, Global Head of Portfolio Construction and Strategy, to discuss the prospects for the global economy and why relatively robust fundamentals among high yield borrowers offer grounds for optimism, given that markets have already priced in many of the inflation concerns.

Key takeaways

  • High yield bond prices have sold off as rising interest rates have weighed on returns and non-traditional investors (so-called tourists) exited the asset class, but their relatively high yields have typically helped them outperform investment-grade corporate bonds and government bonds in the first few months of 2022.
  • COVID tested high yield issuers but it also prompted useful refinancing and higher cash reserves, meaning many issuers would go into any economic slowdown from a position of strength. Sectors of the economy are still dislocated, however, so it is necessary to look at corporate issuers on a case-by-case basis.
  • The rapid rise in government bond yields, particularly among U.S. Treasuries, has pushed up the yield on high yield, providing an opportunity for investors to more convincingly achieve the name of the asset class – high yield.