High-yield bond funds will continue to outperform the market for 12 months, thanks to continued global economic recovery and strong earnings from the companies issuing these bonds, a fund manager said yesterday.
The good news could also help boost the credit ratings of these companies, Andrew Jessop, a global high-yield bond fund manager for Pacific Investment Management Co told a media briefing.
“Stronger economic momentum and further upgrade opportunities for bond issuers drove up the upsides for high-yield bond funds in a year,” Jessop said.
Currently, the default rate for high-yield bond funds is below 5 percent, as they recover from their downturn in November 2009 on the back of improving revenues and earnings for firms issuing the bonds, Jessop said.
The default rate for high-yield bond funds once reached about 20 percent, a record-high figure, in November 2009, data showed.
International ratings agency Moody’s expected the default rate for high-yield bond funds to keep falling to 1 percent and 1.5 percent in 12 to 18 months, Jessop said.
Relatively low interest rates in the US helped companies issuing high-yield bonds to extend their maturity day easily by issuing new bonds for refinancing, further decreasing their default rate, he said.
History showed the rate of return in the high-yield bond market usually has a positive relationship with the return in the US stock market, but with lower volatility, making high-yield bonds a better substitute for equity investments, Jessop said.
Ricci Chan (陳柏基), a product manager for Allianz Global Investors Taiwan Ltd (德盛安聯投信), said it was better to focus on high-yield bonds issued from companies in emerging markets this year, because the economic momentum in these markets remains stronger than in developed markets.
“Do not get too close to the US public debts, because the US government did not handle its debts well this year,” Chan said.
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