The high yield bond segment will present attractive opportunities in the coming months as credit quality improves.
This is one of the main findings of Janus Hederson’s bond team, following the release of the company’s annual corporate debt index, which pointed out that total global borrowing is not only grew by 1% in the first six months of 2021.
As a result, the asset manager sees significant possibilities for the rehabilitation of some of last year’s fallen angels as the recovery begins to take hold.
Bond portfolio managers Janus Henderson favor food and beverages, such as Kraft, certain automakers such as Ford, as well as opportunities in the energy and consumer sectors.
Tom Ross and Seth Meyer, Citywire + rated fixed income portfolio managers at the company, said an investment boom was very likely after the Covid-19 freeze.
âThis will be a big part of the reduction in cash balances this year, but share buybacks and increased dividends will also be part of the story,â the duo said.
Fund managers added that the prospect of higher economic growth and higher inflation is generally viewed as negative for fixed income, but it also means improving credit fundamentals.
âMost importantly, the corporate bond markets are not a single, uniform asset class. While the overall borrowing costs are low, businesses still want to move up the rankings because it gets even cheaper.
âThe additional borrowing costs for a BB issuer are 100bp more expensive than for a BBB issuer, just a step up,â they added.
Fund managers have said that strong economic growth can trigger persistently higher inflation, but investors should not fear the opportunities.
“We believe central banks will maintain their support for the economic recovery by keeping interest rates low and engaging in asset purchases (quantitative easing).”
“This should provide a favorable environment for both supply and demand for high yield bonds, creating opportunities for good credit selection.”