High yield and QE: Making money from the domino effect

High yield bonds expected to be the next outperformer

“As we buy assets, investors are likely to substitute the lower risk assets we buy with riskier assets” – Mario Draghi, President of the European Central Bank, 21 November 2014

Quantitative easing has been the clear policy tool of choice for global central banks since the Global Financial Crisis. This has become even more the case in recent times as interest rates are already at (or through) zero, and therefore the marginal benefit to cutting interest rates further is lower. The response by central banks to the Coronavirus crisis this year is symptomatic of this - as the chart below shows, the Federal Reserve increased the size of its balance sheet by over double the amount it increased during the financial crisis. This level of quantitative easing is unprecede...