Investing in high yield bonds
- 30 September 2022 (5 min read)
High yield bonds have a reputation as being speculative and closely correlated to equities. But, we believe, there is more to this asset class, which has seen growth and maturation over the past several decades.
High yield bonds, also known as “junk” bonds, are issued by companies with a lower credit rating than their investment grade counterparts. High yield bonds typically offer investors higher income to compensate for the risk of the lower credit rating and, as such, offer investors a higher risk, higher return option than more traditional fixed income markets.
We believe that the key to achieving potential attractive returns within high yield is to compound income and avoid capital loss. As the chart below shows, average historical market returns for high yield performance is largely driven by coupon payments, with changes in price providing a negligible contribution to return. As such, we believe, our philosophy is well-suited to make the most of what the asset class can offer, while seeking to avoid its principal risk – that of companies defaulting on their debt.
High yield bonds
High yield investing has the potential to offer risk-aware investors an attractive source of income.
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