As strong as the market recovery has been year-to-date, investors searching for yield still need to take caution.
So says Nicholas Leach, vice-president of global fixed income at CIBC Global Asset Management, and lead manager of the Renaissance High-Yield Bond Fund. “We’re still slightly below last year’s levels in terms of prices, returns, spreads and yields. We haven’t even earned the coupon over the past year, and I think there’s still a lot of ground to be made up in 2016.”
He adds, “With spreads of around 565 basis points [as of the first week of August], that’s still wider than the historical median by about 100 hundred basis points. And this is in the context of extremely low yields globally, and negative yields in many parts of the world.”
Take Europe: “There’s about $280 billion in European corporate debt, and [there’s] a lot of corporate credit debt with a negative yield,” Leach notes. “That includes global conglomerates such as Procter & Gamble, Johnson & Johnson, BMW and Toyota. All of these companies are getting paid to borrow money.”
This environment is pushing investors further into the credit markets, says Leach, “and that’s in regards to both investment-grade and high-yield credit. Within the context of the whole global fixed-income market, investors remain underwater in terms of yield.”