The situation could get worse, defaults increase and in the short term the losses could exceed the profits. But the high yield market potentially remains a great deal. Word of James Tomlins, manager of M&G Investments’ M&G (Lux) Global High Yield ESG Bond fund, that returns could be significant over the medium to long term. In fact, there are a number of reasons that play in favor of this market: the rapid and incisive policy response, the fact that the crisis triggered by the coronavirus should sooner or later have a certain end and the low valuations given that many of the bad news are already been priced.
“We have seen negative returns of -12.7% in the global high yield market. After a weak February, this brought first quarter returns to -13.7%. To put this into context, these were the worst second month and second quarter since 1998. Only in October 2008 and in the fourth quarter of 2008 was there a worse decline for the market ”.
“Yes, but probably not that much. In the long run, spreads have been wider (reaching over 2,000 basis points after the Lehman Brothers bankruptcy), and currently hover at just under 1,000 basis points. It is difficult to pinpoint the low point of this particular market cycle. It may have been a few days ago, it may be in a few months, but what gives me hope and comfort that the situation may not get much worse is that the policy response we have seen has been swift and incisive both in terms of support. to markets and direct fiscal support to companies and individuals. Remember that the last time spreads reached over 2000 was before the United States passed the Troubled Asset Relief Program directive. And we are also trusted by the fact that the coronavirus crisis has a very specific cause and therefore should have a certain end: once the infection rates drop significantly and life returns to a semblance of normalcy, the world will move on. . Of course, the economic impacts will be lasting, but not forever and, given the action of policymakers, I don’t think this is an existential crisis for high-yield markets “.
“Definitely. Global default rates stood between 0 and 5% for the high yield, before entering the current scenario.