The attractive risk/reward characteristics of high yield bonds mean they continue to gain traction with investors. Their combination of higher yield and lower duration is a sought-after feature in the current low-yield environment.
And, when compared to other fixed income sectors, high yield’s diversification benefits sets it apart from the poorly rewarded duration and credit risks of today’s core sovereign and investment grade bond markets. Its defensive qualities — that have consistently led to lower drawdowns relative to equities — boost the sector still further.
An important part of high yield’s attractiveness hinges on its long-term ability to deliver equity like returns for comparatively lower levels of risk. While high yield has been riskier than high quality sovereign and corporate bonds, the asset class’s defensive qualities of high coupons and relatively short duration provide support at this stage of the investment cycle.