High Yield Bonds Not in a Bubble but Growth is Hard to Find

Strategic bond investor John Pattullo of Henderson admits that the opportunity for capital growth in the bond market is falling, but there are still attractive yields

Emma Wall 23 June, 2014 | 1:23PM

There is not a bubble in the high yield bond market – John Pattullo, head of retail fixed income at Henderson – is adamant about that.

The high yield bubble has been widely reported over the last couple of months, mostly in the pink pages, as fears that the price of high yield is unsupported by the underlying assets. Prices have indeed risen dramatically – and yields conversely fallen, meaning many high yield bonds are simply not living up to their moniker. Average yields on high-yield bonds peaked at more than 25% at the height of the financial crisis. In May 2014, they were back down to 4.2%.

Demand for sector has increased as investors looked to more risky fixed income to fulfil their income requirements. Assets under management in European high yield bond funds have grown from €12 billion at the beginning of 2009 to €57 billion in April 2014, according to Morningstar data. This spike demand has led some to question just how liquid the asset class is, and whether investors are paying over the odds for ‘junk bonds’ – and not being properly remunerated for default risk when it comes to the yield.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Janus Henderson Strategic Bond I Acc378.20 GBP0.21

About Author

Emma Wall  is former Senior International Editor for Morningstar

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