Authored by Charles de Quinsonas via BondVigilantes.com,
With the US Treasury curve yielding above 4%, high yield (HY) bonds still offer mid-single digit yields.
As of the end of September, US high yield, European high yield and emerging markets (EM) corporate high yield bonds were offering 7.0%, 6.1% and 7.4% respectively.
Source: M&G, BofA Global Research, as at 30 September 2024
Active management will aim to reduce default loss and increase excess spread.
Therefore, investors who bought US high yield in September 2014 enjoyed an actual excess spread of 257bps (440bps minus 183bps of default loss).
Source: M&G, as at 30 September 2024
The results over time are surprising.
However, this can be explained by one-off events, namely COVID-19 for US high yield and the Russia/Ukraine conflict for emerging markets high yield.
With that in mind, we believe median numbers are more representative.
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