Are high yield bonds worth the risk as leverage grows?

Are high yield bonds worth the risk as leverage grows?

Bryn Jones, head of fixed income research at Rathbone Unit Trust Management, says if high yield bonds rally further, investors may struggle to uncover the value in the sector.

The outlook for high yield remains vulnerable, to say the least. Indeed, you could go so far as to say the impending rise in government bond yields may spell disaster for some sections of this space. Broadly speaking, the high yield sector tends to have a low correlation to other sectors of the fixed income market. It also exhibits less sensitivity to interest rate risk, and so an allocation to high yield bonds may provide investors with diversification benefits. They can also provide quasi-equity returns, so what is not to like? Leverage worries There has been a worrying increase i...