Global investment firm Baring Asset Management analyzed on Nov. 11 that the investment outlook for high-yield bonds, which are issued by companies with low credit ratings, is promising. They further noted that investing in resilient high-yield corporations through a stock-centric bottom-up approach is effective.
Manager Brian Pacheco said, “Macroeconomic risk factors such as global economic recession and political and geopolitical risks continue, but the level of those risks is gradually easing.”
He continued, “From a fundamental perspective, despite weakness in retail and some consumer sectors, the financial soundness of most high-yield corporations is in good condition,” adding that “in terms of supply and demand, while the market supply of bonds is relatively limited, strong demand is firmly supporting the high-yield bond market.”
Manager Pacheco emphasized, “Currently, the share of BB-rated issuers in the global high-yield bond index is nearing an all-time high at about 56%, while the share of CCC-rated issuers is only about 11%. Considering that defaults primarily occur in CCC-rated bonds, the low share of CCC-rated bonds in the market is very positive.”
Additionally, Manager Pacheco expects that the relative short duration of high-yield bonds, which indicates the sensitivity of bond prices to interest rate changes, minimizes the price volatility risk associated with interest rate fluctuations and allows for steady interest income.