Investors sell high yield on fears of default spike

Strategic bond managers have been reducing high yield exposure in anticipation of a default rate spike in the second half of the year.

Managers are concerned the overhanging eurozone debt crisis will have a material impact on corporate debt financing, in the event of a deeper recession spreading across the continent. Their more bearish stance on the asset class was supported last week by Standard & Poor’s, which increased its projected default rate for European corporates. The credit agency predicted 6.1%-8.4% of the 676 issues in its high yield universe domiciled in Europe will default this year, up from 4.8% in 2011, and a significant increase from its previous forecast of 5.5%-7.5%. LGIM’s Richard Hodges (pictu...