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Four Reasons High Yield is More Resilient Today

December 2023 – 5 min read

The high yield bond market has undergone a fundamental shift over the last decade, with today’s higher-yielding, higher-quality market looking particularly resilient in the face of a potential downturn.

There is clearly no shortage of challenges shaping the investment landscape today. Optimism around the prospect of an economic soft landing seems to be fading, and a potential recession looms in what may be the not-so-distant future. The path of interest rates also remains uncertain, although consensus seems to be for a prolonged ‘higher-for-longer’ environment going forward. At the same time, geopolitical tensions continue to escalate around the globe.

While all these factors have the potential to weigh on markets in the months ahead, high yield bonds look particularly well-positioned to weather the impending storm—for four key reasons.

1. The Market is Higher-Quality

There is a common interpretation that high yield means high risk. But that is not necessarily the entire case—in fact, the quality of the market today is higher than it has been historically. More specifically, while Europe has historically been more of a BB-rated market, most U.S. high yield issuers today are BB-rated—a seismic shift from a decade ago. At the same time, the lowest-rated CCC issuers account for only 11% of the U.S. market today, versus over 19% 10 years ago and 17% 20 years ago1. The companies in the U.S. high yield market today are also larger and more globally diversified relative to history, and include global well-recognized names.

1. Source: ICE BofA. As of September 30, 2023.

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Sean Feeley, CFA

Managing Director

The document is for informational purposes only and is not an offer or solicitation for the purchase or sale of any financial instrument or service. The material herein was prepared without any consideration of the investment objectives, financial situation or particular needs of anyone who may receive it. This document is not, and must not be treated as, investment advice, investment recommendations, or investment research.

In making an investment decision, prospective investors must rely on their own examination of the merits and risks involved and before making any investment decision, it is recommended that prospective investors seek independent investment, legal, tax, accounting or other professional advice as appropriate.

Unless otherwise mentioned, the views contained in this document are those of Barings. These views are made in good faith in relation to the facts known at the time of preparation and are subject to change without notice. Parts of this document may be based on information received from sources we believe to be reliable. Although every effort is taken to ensure that the information contained in this document is accurate, Barings makes no representation or warranty, express or implied, regarding the accuracy, completeness or adequacy of the information.

Any forecasts in this document are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance. Any investment results, portfolio compositions and/or examples set forth in this document are provided for illustrative purposes only and are not indicative of any future investment results, future portfolio composition or investments. The composition, size of, and risks associated with an investment may differ substantially from any examples set forth in this document. No representation is made that an investment will be profitable or will not incur losses. Where appropriate, changes in the currency exchange rates may affect the value of investments.

Investment involves risks. Past performance is not a guide to future performance. Investors should not only base on this document alone to make investment decision.

This document is issued by Baring Asset Management (Asia) Limited. It has not been reviewed by the Securities and Futures Commission of Hong Kong.

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