Strategic bond managers hedge against further high yield sell-off

Where now for bonds?

Strategic bond managers have started increasing their high yield hedges via synthetic exposure in anticipation of further stress in the asset class.

US high yield bond funds and ETFs saw record outflows at the start of August after Fed chair Janet Yellen sparked a sell-off by saying high yield valuations "appear stretched". That sent US high yield spreads as high as 445bps above government debt. Prices staged a comeback later in the month but were hit again at the end of September, with the sector down 2.2% in Q3 as a whole. The debt may also have been knocked by Bill Gross' 26 September departure from PIMCO: benchmark yields have risen from 5.95% to 6.15% since the announcement. Strategic bond managers are concerned the asset ...