Central banks seem to be winning the fight against inflation, although at this stage it remains unclear whether that is attributable to tight monetary policy or easing supply shocks and depleted consumer savings.
Bond markets have responded with significant spread tightening, but this may be somewhat premature. Normally at this point in the economic cycle, relatively weaker consumer strength should translate into slowing investment spending; but fiscal spending programmes may distort the true picture.
"Looking at the largest high-yield markets in aggregate, I see Europe currently better positioned than the US as its consumers have stronger balance sheets and the region has yet to enjoy the benefits of more accommodative fiscal policies," says Leidman.
"While I still think there is a reasonable likelihood of a mild global recession, the balance appears to be increasingly tipping on the side of a soft-landing scenario, even if a number of European economies, most notably Germany, remain currently vulnerable to slowing growth," he says.
"As an active high-yield investor, I am excited about the opportunities offered by the new macro regime with its higher levels of cyclicality and dispersion between regions, sectors, and assets. At the same time, I think caution is warranted as the environment remains uncertain and volatility is likely to persist," he says.
"However, I believe current all-in yields provide a meaningful cushion to investors. The growing differentiation among sectors and regions in the high-yield market is, in my view, starting to create attractive opportunities for bottom-up focused investors with Europe currently as the standout region," he says.
To learn more about emerging area of opportunity in high yield bonds, read more here.
The views expressed are those of the author at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
