Is high yield still worth the risk?

IS HIGH YIELD STILL WORTH THE RISK?

The average yield on the pan-European High Yield index, excluding financials, is just short of 6.5%, very near its all-time low. ‘High' is not what it was. Is it still worth the risk?

Typically, 6.5% has been closer to the yield on investment grade bonds - those issued by huge multinationals, not struggling fringe players. In fact, high-yield companies don't just tend to be niche and cyclical, but also prone to distressingly frequent and expensive defaults. On the face of it, 6.5% is not an attractive proposition. Historically low returns, for a historically risky asset class. Nevertheless, in a reversal of the old joke: I would start from here. In part, because of a closer consideration of what makes up those returns. Excluding currency, there are two key risks in a ...