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High-yield bonds – on a rollercoaster ride

Not only fund flows are capricious when it comes to high-yield bonds. Investor sentiment towards the asset class also swings continuously, particularly on a country-by country- basis.


PA Europe

While high-yield bonds have quite consistently been the most popular fixed income asset class with investors over the past couple of years, that’s not to say they are universally popular every quarter. To the contrary, in only very few countries a convincing share of investors intend to increase their allocation to the asset class for more than two quarters in a row.

A bull-to-bear cycle

Back in March, for example, a third of Dutch fund buyers said they were planning to increase their allocation to high-yield bonds in the next 12 months while only 10% planned a decrease. In July however, there were no buyers left and a third of those polled now say they will reduce their allocation to high-yield.

Only in Denmark has the percentage of those intending to increase their allocation to high-yield bonds consistently remained above the European average over the last three quarters. But even in this relative bastion of consistency, things can change quickly: while sellers were nowhere to be seen just three months ago and almost everybody was buying more, buyers and sellers balance each other out now.

With yields as low as they are and bond spreads continuing to contract, there’s likely to continue to be a healthy baseline demand for high-yield bonds for some time to come. The fluctuations in appetite that have come to characterise the asset class are also likely to persist however.

This is simply a reflection of the volatility of the asset class in recent times, and means the timing of your high-yield investment is now more important than ever. Understandably, this seems to have led to a rise in tactical buying and selling.