High yield friends

At the end of 2016, you may have felt you’d seen it all with respect to world affairs: Miss Universe owner, Donald Trump was voted the 45th President of the United States of America; Brexit was passed with a 51.9% ‘leave’ bias; and some of the world’s most iconic musical legends passed away including Prince and David Bowie.

Three years on and the ripples of the first two events can be still felt in varying degrees. Might these events be affecting our famously defensive friends, high yield funds?

Commonly, and definitely currently, high yield bond funds and the stock market make ‘influential friends’; each guiding and encouraging the other, for better or worse.

The events of 2016 are very much still ringing. Now is a particularly reactive time for high yield funds.

For example, in the days prior to September 12 this year, the high yield bond market was up following the US and China agreement to hold trade talks next month. The talks are the result of the newly imposed tariffs each monster economy saw fit to serve against the other.

But what will happen if one of the parties gets a headache? High yield spreads are quite the indicator for investment analysts and economists alike, showcasing the outlook for corporate health.

Today, the high yield universe is as varied as it is large, yet bond yields have plummeted to an all-time low. Investors are still seeking those dizzy heights of the high yield heyday, but are they still out there and, if so, are they liquid enough to survive another shock and how agile have they been these past years?

These are the questions investors will be asking themselves during the rest of the year.