Turbulent high yield debt markets have recently prompted some investors to take a more cautious view of the asset class. However, we believe high yield remains a compelling strategy for fixed income investors, particularly as the US Federal Reserve (the Fed) looks to raise interest rates.
As the US Fed plans to embark on its next interest rate tightening cycle – one that we believe will be slower and longer than what they’ve done in the past – investors in traditional fixed income assets are bracing for a prolonged period of underperformance. Zero-interest rate policy over the last several years has left many core fixed income portfolios with little yield cushion to absorb rising benchmark rates.
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