Higher starting yields and improving credit quality are helping reinforce the case for global short-dated high yield bonds.
A decade ago, we launched the pooled version of our Global Short-Dated High Yield Bond strategy with a simple belief: investors did not need to sacrifice quality or take excessive duration risk to access attractive income-based returns.
A decade later, markets have changed dramatically. We have lived through negative interest rates, a global pandemic, the sharpest rate-hiking cycle in decades, regional banking stresses, inflation shocks and geopolitical upheaval.
Today, the yield available in global short-dated high yield bond markets is higher than it was 10 years ago, and we believe this is an attractive starting point for navigating the next decade.
Why consider short-dated high yield bonds?
One of the defining characteristics of short-dated high yield bonds is their relatively low sensitivity to changes in long-term interest rates and credit spreads. As yields rise, shorter-maturity instruments generally experience a more limited price adjustment than comparable longer-dated bonds. Historically, this has allowed the asset class to generate attractive long-term returns while experiencing lower volatility than both the wider high yield market and global equities.
Short maturities can also make credit analysis more focused. As the investment horizon extends, uncertainty around a company’s operating outlook, capital structure and repayment capacity tends to increase. Credit analysis can help to identify companies with visible cash flows and a clear pathway to repayment over a roughly two-year investment horizon.
Ten reasons at a glance
- Lower interest-rate sensitivity can help deliver returns with less volatility
- A shorter investment horizon increases business visibility
- Income can provide a powerful anchor for returns
- Reinvested income and the power of compounding can drive long-term returns
- A global opportunity set allows investors to exploit valuation dislocations
- High spread dispersion creates positive conditions for active security selection
- Call premiums can provide an additional source of return
- A disciplined focus on avoiding defaults can help investors capture the full yield on offer
- Strong market technicals should support the asset class
- An institutional investor base has helped improve market resilience
The next decade starts here
In our view, today’s higher starting yields, stronger average credit quality and limited near-term maturities provide a supportive backdrop for global short-dated high yield bonds. Combined with a global opportunity set and meaningful dispersion between issuers, sectors and regions, we believe this creates potentially attractive conditions for disciplined active management.
The value of investments and the income received can fall as well as rise and investors may not get back the original amount invested.
2304250 Expires: 5 November 2027
