Record low junk bond yields force investors to accept more risk

High yield bond investors will face challenges in 2013 as companies take advantage of market conditions to issue lower-yielding debt.

Analysts at Société Générale said recent high yield issuance has seen average coupons below 5%, and the trend is likely to push yield-hungry investors into even riskier debt. In the US, one tranche of CCC-paper – issued by companies defined by Standard & Poor’s as “currently vulnerable” – yielded a record low 6.6% last month. “The problem investors will soon face is how to generate good returns next year, not the 10% we will see this year, but more like 5% or even 4%,” said SocGen’s credit strategy team. James Tomlins, manager of the £53m M&G European High Yield Bond fund, said the...