HY bonds: Has risk of default increased or has value returned?

Rhys Davies, fixed interest deputy fund manager at Invesco Perpetual and manager of the City Merchants High Yield investment trust, explores what the recent rise in yields in the high yield market means for investors.

After years of struggling to find value, high yield bond markets are starting to become interesting again. Among other factors, the fallout from a slowing China has led to a significant re-pricing of high yield bonds over the past three months. As at 30 September, the average yield of the European high yield bond market was 6.1% up from a low of 4.4% in February 2015. High yield bond yields last reached this level in June 2013, after the US Federal Reserve speculated it might end its quantitative easing programme – a period often referred to as the taper tantrum. The question for us a...