high yield bonds

High yield bonds are positioning themselves cautiously in the spotlight as recession fears recede and credit quality improves. While junk bonds perform best during periods of robust economic growth, a region that’s closely flirting with a recession is seen as having the most potential.

High-yield bonds are not equal. In the US market this year, the difference in spreads between bonds with credit ratings of CCC and below versus BBs rose from 4.6 percent to 9 percent.

The US Bloomberg Barclays High Yield Index has already risen by more than 30% since its low in March. But the big rally is now over, with the remaining opportunities now primarily in reopening trades and rising stars, according to Walter Kilcullen, manager of the Legg Mason Western Asset US High Yield Fund.

The high-yield market has recovered nicely from the corona-induced market crash, but further price appreciation is becoming increasingly unlikely, says manager Ulrich Gerhard of the BNY Mellon Global Short-Dated High Yield Bond Fund in an interview with Investment Officer.

March is not even halfway through, but has already presided over the largest fall in the price of European high-yield bonds since October 2008. The BofA European Currency High Yield Index is already in the minus 8% this month, but the unprecedented fall in prices also offers opportunities. Within Europe, I would now rather invest in Italy than the UK or Germany.