High yield fears drive buyers to strategic bond funds

Fund buyers have been selling out of high yield bond funds as liquidity dries up in the secondary market and they predict little value remains in the asset class.

High yield has had a strong run in the past 18 months, but with huge amounts of money continuing to flow into the sector, wealth managers fear a potential liquidity crisis in the future. Fraser Lundie, co-head of credit at Hermes Fund Managers, said investors are right to be concerned, given bid-offer spreads in the secondary market are at pre-crisis highs. “Investors’ appetite for high yield bond issues has transformed the secondary market, a venue for buying and selling outstanding securities, into a ghost town,” he said. “Due to shallow inventories and a deserted secondary marke...