Volatility warrants caution in US high yield

12/08/2019

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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.

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The information in this article does not qualify as an investment recommendation.

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Important information

Please read the following important information regarding funds related to this article.

Janus Henderson Horizon Global High Yield Bond Fund

Specific risks

  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • The value of a bond or money market instrument may fall if the financial health of the issuer weakens, or the market believes it may weaken. This risk is greater the lower the credit quality of the bond.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise. This risk is generally greater the longer the maturity of a bond investment.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.

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