High yield has hardly been a top pick of late, with both fund selectors and strategic bond fund managers looking to cut their exposure, often blaming plummeting oil & gas prices as a catalyst pushing up the number of bonds trading at distressed levels.
Unsustainable corporate leverage
Anthony Rayner, co-manager of Miton’s multi-asset fund range, says the S&P research illustrates there are increasing examples of unsustainable corporate leverage being uncovered.
“For example, last week Spanish infrastructure group Abengoa began insolvency proceedings and could be Spain’s largest corporate bankruptcy and the biggest default in eurozone high yield this year,” he said.
“Going forward, assumptions as to corporate growth rates and the ability to refinance debt based on the post-crisis period are starting to look a little lazy.”
High-yield bonds less exposed
Ahead of Thurday’s move by the ECB to extend quantitative easing, JP Morgan Asset Management’s CIO Nick Gartside suggested that credit spreads are essentially pricing in a multiple of where default rates should be, possibly creating an attractive level of cushion.
Elsewhere, Schroders’ head of global macro Bob Jolly suggests that high-yield bonds are less exposed to policy changes, and as with investment grade bonds, the volatility and risk aversion of the third quarter has “reset valuations to the point that certain areas look attractive”.
“Commodity-sensitive sectors, particularly in the US, represent a range of prospects, provided the appropriate level of research has been undertaken,” he says.
