High yield still the pick of the bond market

The prospects for high-yield bonds continue to be attractive against a backdrop of a recovering economy, higher interest rates, more M&A activity and a rising equity market

This time last year Isa investors were filling their boots with investment grade bonds and shunning risky assets. In the end, the FTSE All Share Index posted total returns in 2003 in excess of 20% and, rather pleasingly, the Merrill Lynch European High Yield Constrained Index generated total returns of 28.1% for sterling investors. We are more positive on high yield than either investment grade bonds or gilts. Of course, last summer we recommended that investors should move from gilts and investment grade corporate bonds into equities and high-yield bonds - provoking some controversy at th...