High Yield Bonds

We offer a range of high yield strategies investing within and across regions, sectors and maturities.

What is high yield investing?

External ratings agencies assign credit ratings to companies and governments issuing bonds based on an assessment of their credit-worthiness. This rating can help to indicate the issuers likely ability to pay interest and principal as scheduled.

A high credit rating (above BBB or Bba for Standard & Poor’s and Moody’s, respectively) is considered ‘investment grade’ while a low credit rating is considered ‘high yield’ (sometimes called ‘sub-investment grade’ or ‘junk bonds’). High yield bonds are more volatile with higher default risk among underlying issuers versus investment grade bonds.  Issuers with low credit ratings need to pay higher interest as incentive to purchase their bonds. As with most investments, higher potential risks demand higher potential rewards to compensate.

The high yield bond market was born in the US and that remains the largest market. However, today there is a global high yield market offering potential benefits such as the diversification of Europe or the stronger growth potential of emerging markets.

Why high yield bonds?

High yield bonds offer a number of potential benefits, alongside some specific risks such as higher volatility and higher default rates. In the current environment of persistently low interest rates, bond investors are finding attractive yield difficult to come by. For those in a position to take on higher levels of credit risk, high yield bonds may provide a significant yield enhancement to portfolio.

1.
Higher yield and diversification

In addition to significantly higher income than investment grade bonds, high yield often behaves differently to other areas of the fixed income universe so can provide important diversification to a broader fixed income portfolio.

2.
Equity-like return with lower volatility

There is also the potential for capital growth. Historically, the high yield market has delivered a long-term return profile broadly in-line with equities 1 . Like equities, high yield bond prices can increase as a result of improved performance of the issuing company or a wider economic upturn. However, the typically higher income component of high yield bonds means that they are generally less volatile than equities.   

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3.
Lower duration

High yield bonds are typically issued with shorter maturities than many investment grade bonds (generally less than 10 years) and therefore tend to have relatively lower duration. This means a high yield strategy may be less exposed to interest rate risk than most investment grade strategies.

Our high yield strategy

Our experienced, dedicated high yield teams employ a consistent investment process which has been tested over a range of market cycles and conditions. This process is centred on the philosophy that the key to superior long-term potential returns in the fixed income market is compounding current income and seeking to avoid principal loss through fundamental credit analysis and macroeconomic research.

Our robust bottom-up credit research process focuses on identifying companies with improving credit trends, while the top-down component seeks to identify risks and opportunities associated with the overall economy and market. In this way we aim to minimise default risk and manage volatility through active management, while pursuing high yielding opportunities and potentially generating capital growth.

Our high yield strategies

AXA IM offers a range of high yield strategies investing within and across regions, sectors and maturities.

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Risks

No assurance can be given that high yield strategies will be successful. Investors can lose some or all of their capital invested. You are subject to risks including risk of capital loss, interest rate risk, counterparty risk, operational risk, liquidity risk, credit risk, high yield bond risk, reinvestment risk. 
 

    Disclaimer

    This website is published by AXA Investment Managers Asia Limited (“AXA IM HK”), an entity licensed by the Securities and Futures Commission of Hong Kong (“SFC”), for general circulation and informational purposes only. It does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy, sell or enter into any transactions in respect of any investments, products or services, and should not be considered as solicitation or investment, legal, tax or any other advice, a recommendation for an investment strategy or a personalised recommendation to buy or sell securities under any applicable law or regulation. It has been prepared without taking into account the specific personal circumstances, investment objectives, financial situation, investment knowledge or particular needs of any particular person and may be subject to change at any time without notice. Offering may be made only on the basis of the information disclosed in the relevant offering documents. Please consult independent financial or other professional advisers if you are unsure about any information contained herein.

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