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.

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High yield bonds

High yield investing has the potential to offer risk-aware investors an attractive source of income.

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    This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.