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US high yield goes from strength to strength

A riskier part of the bond market hits a sweet spot
US high yield goes from strength to strength

Inflation concerns have spelled a worrisome 2021 for many fixed income investors, especially when it comes to the outlook for government bonds. But riskier segments of the asset class have been quietly flourishing.

High-yield debt, which has a strong correlation to equities and a level of exposure to energy and other more cyclical industries, has performed well so far. What’s especially notable is that one part of the market is having its best year in a long time by certain measures. Fitch Ratings noted earlier this month that the default rate for US high-yield bonds came to just 0.4 per cent for the year to date.

To put it in context, this represented the lowest such reading for the start of a year since 2007. Default volumes came to $5.6bn (£4.1bn), a 90 per cent fall from last year’s $55.1bn total. US high-yield debt investors have seen two months with no defaults this year, something not experienced since 2014. Fitch noted that 2021 could “conceivably challenge the six months of zero defaults experienced in 2007”.

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