High-yield bonds have had a good run. But with interest rates rising, has the market run out of road? Don’t bet on it. The sector usually motors ahead when rates rise. And when it does decline, it rebounds rapidly.
As an asset class, fixed income generates longer-term returns that are largely predictable. So why are those returns not always a reasonably sure thing, and why is there controversy around the methodology being used for making predictions for one sector in particular?
When the market starts buzzing about rising rates, high-yield bank loans’ popularity grows. Although the bank loan bandwagon may look tempting, we’ve found reasons why high-yield bonds shouldn’t be so easily dismissed.
A pending US interest-rate hike and worries about inflation may have persuaded investors to start avoiding bonds. We think that’s a mistake, especially when it comes to high yield, a sector that often thrives when rates rise.