When the end of the year approaches, it is time to analyze what has happened, see successes and errors and, based on this, design the most appropriate investment strategy for the beginning of the next year. When it comes to fixed income, 2024 has been a year full of ups, downs and scares. Volatility has been a constant in debt assets, less accustomed to it than others, which may have alienated depending on the profile of investors but, at the same time, has opened up good entry opportunities on several occasions.
One of the most volatile segments within this type of assets is the high yield. Debt securities that are not investment grade tend to be a much more risk-correlated asset. That is, when risk aversion increases, this asset falls more and vice versa, in a similar way to what equities would do. However, it differs from the stock market in its coupons. The tall carry that they offer to the holder represents a mattress of profitability that compensates for a possible drop in its price.
Global high-yield debt this year already exceeds 10% profitabilitywhich beats other segments such as emerging debt in dollars, global corporate and, of course, sovereign. He has also earned more with it than with exchanges like the British or French ones this year.
After the comings and goings of the first half of the year, it seems that during this second part the market has become convinced of what the path of normalization of interest rates by the large central banks was going to be. Thus, with the meeting that the Fed and the ECB that will celebrate this weekthe monetary course will be closed, making way for 2025 in which an acceleration of cuts in the eurozone is anticipated and greater caution in this regard on the part of the United States, where inflation is not yet controlled, consumption remains strong and economic growth is not in danger, something that does happen on this side of the Atlantic.
Regarding the US market for high yield, “Valuations could remain in a range close to current levels, supported by a positive context of economic prospects, technical indicators and market fundamentals,” they explain from Capital Group. “Despite having increased in year-on-year terms, the issuance level remains at low levels due to the existence of higher rates and refinancing activity,” they add.
“However, the favorable economic outlook and the forecast of future rate cuts drive positive flows and, in an environment like the current one, technical factors could continue to support the valuation level as the large volume of maturities has been addressed. planned for 2025 and 2026, with non-payment expectations that remain low,” they conclude.
Outlook for next year
Although this year has been very good for the debt, last year was also good for the high yieldwhich had a return of 14% after the 12.7% drop it obtained in 2022. Of the last 10 years, only three have left negative returns on this type of asset, according to the index prepared by Barclays and Bloomberg.
Looking ahead to the next 12 months, The expected return is just over 7%4 percentage points more than sovereign debt and double that which obtains an investment grade rating. “Although it is difficult to predict, we think that next year will be good for the high yield “The coupon levels remain attractive despite the recent rise in prices,” they add. “On the European side, if the war Trump’s tariff is not as tough as expected, a strong recovery could be seen in some of the segments high yield such as automobiles,” they conclude.
LinkedinBeloud
#High #yield #debt #exceeds #accumulated #profitability #year
