High Yield Bonds: Past the Lows, Reaching for the Highs
The markets have put in a substantial bounce since March but fear persists that they have assumed a return to normal too quickly. There are certainly meaningful concerns still stalking sentiment – the resurgence of COVID-19 being the main one. As long as it remains a case of firefighting the disease at a local level, then perceptions should persist that it remains under control.
Economic data should also remain a source of positive news. Re-imposing a total lockdown looks unlikely, meaning indicators could stay well above the depths they plumbed in April. The enormous monetary and fiscal stimulus that has been delivered should ensure that the recovery continues. The economy responded strongly to these forms of stimulus in 2009 and 2010 despite a heavily impaired banking sector. The continuation of the economic rebound should be sufficient to stabilise risk assets.