Bearing Asset Management "Interest Rate Uncertainty Continues... High-Yield Bonds Promising"

Global investment firm Baring Asset Management analyzed on the 5th that global high-yield bonds are emerging as an effective investment alternative amid ongoing interest rate uncertainties.

Scott Ross, Head of Baring Global High Yield Investments, expressed concern that "market uncertainty regarding the direction of the U.S. Federal Reserve's monetary policy continues following the inauguration of Donald Trump's second administration." He added, "While some expect interest rate hikes amid concerns that inflationary pressures may rise again, the likelihood of rate increases is low." He emphasized, "Global high-yield bonds are well-positioned to generate performance."

High-yield bonds generally refer to high-risk, high-return bonds with credit ratings of BBB- or lower. Although they carry a higher risk of default, they offer high interest rates. They also have the advantage of maintaining lower volatility compared to stocks.

Ross introduced, "One of the biggest attractions of high-yield bonds is their duration, that is, the average maturity period when bond funds are recovered, which is short." He explained, "Currently, the duration of high-yield bonds slightly exceeds three years, making them relatively less sensitive to interest rate fluctuations."

When interest rates fall, quick reinvestment can secure favorable yields. Even if interest rates rise, the price decline is limited, allowing for steady returns. The annual yield of B-rated high-yield bonds reaches about 7.3%, making the potential for maximizing interest income an attractive factor.

The fundamentals of the high-yield bond market remain generally sound. Issuers have sufficient liquidity and good financial health. The net leverage ratio of U.S. high-yield companies is only about 3.6 times, and the interest coverage ratio reaches 4.2 times. Similar levels are observed in Europe, suggesting that the default rate in the high-yield bond market is expected to remain at a manageable level for the time being.

Amid sluggish recent mergers and acquisitions (M&A) activity, the supply of high-yield bonds has contracted. Despite limited supply, demand for high-yield bonds remains strong, which is expected to technically support the high-yield market. Ross stated, "Considering the strong fundamentals and excess demand for high-yield bonds, they are likely to generate performance even in uncertain markets," emphasizing that "thorough stock analysis and careful bottom-up stock selection are essential."

Baring Asset Management offers an income-type product lineup including the Baring Monthly Payout Global High Yield Fund, Baring Global High Yield Fund, and Baring Global Senior Secured Bond Fund.

This content was produced with the assistance of AI translation services.