When calculating the likely impact of default on these bonds it does seem they offer higher returns than government bonds. But, unsurprisingly given the volume of keen investors, the actual yield has never been lower. In historic terms, high yield bonds are actually offering a low value.
“Everyone is currently buying high yield bonds. Recent numbers show that investors are enthusiastically buying bonds,” according to Dan Kemp, partner at Albemarle Street Partners.
But he warns that default rates will rise, given the capricious nature of the market.
“We have reduced our exposure to high yield bond funds as we don’t have much confidence that default rates will remain low. The market is not good at predicting default rates. In 2007, few were predicting the financial crisis.”
Taking these reflections into account, how do the lowest yielding of the high yield bond funds fare under the scrutiny of an expert?
Victoria Hasler, senior investment research analyst at Square Mile Investment Consulting and Research, takes on four funds which have showed the lowest yield amongst their peers, according to data by FE Analytics.