High yield offering stable growth beyond volatility

BONDS

High yield has been one of the top-performing assets since the spring of last year, while valuations have become more interesting in the wake of the latest reverses.

Despite recent investor jitters, and the likelihood of some recurrent volatility, we believe the market environment is set for a period of relatively stable growth. The asset class as a whole continues to offer investors with a long-term view a number of benefits relative to both other bonds and equities. One draw is the market has priced in high expectations for default rates of around 7% for companies in this sector, as reflected in wide yield spreads relative to government bonds. They thus offer very attractive valuations, when in our view default rates are not likely to exceed 2%,...