Andrew Susser, Executive Managing Director and Head of High Yield at MacKay Shields, joined Keith Black, Managing Director of RIA Channel, to discuss the high-yield bond market.
The equity and fixed-income markets started August with a bout of volatility, but little trading was accomplished in the high-yield bond market despite strong bids from a number of buyers. Susser notes that this shows a strong demand for a limited supply of bonds. While ETFs own about 4% of the high-yield bond market and can have an impact on the market, performance has been challenged due to the high cost of trading in the ETF.
Over the last ten years, the high-yield bond market has increased in quality, with the average bond today rated BB, the highest non-investment-grade bond rating. Lower-rated credits now receive financing in the private credit and loan market, while stronger publicly-traded companies issue bonds in the public markets.
High-yield bonds trade at tighter-than-average historical credit spreads, which makes sense because the quality of the market has been improving. As long as the market doesn’t enter a crisis, Susser expects yields to remain at these levels or even tighten.
High yield is a blend between fixed income and equities. Many high-yield borrowers lengthened the term of their debt before the Fed started tightening rates in 2022, which has reduced the potential impact of rising rates. Susser expects defaults to remain relatively low, especially now that the market is more diversified by industry. Past default cycles focused on specific industries, such as technology, energy, or real estate. Most high-yield is relatively high quality, with the sector recently receiving more credit upgrades than downgrades.
Resources:
NYLI MacKay Short Duration High Income Fund (MDHIX)*
NYLI MacKay High Yield Corporate Bond Fund (MHYIX)**
What Spreads Don’t Tell Us About High Yield
What Can Starting Yields Tell Us about High Yield?
*Effective 8/28/24, MainStay MacKay Short Duration High Income Fund was renamed NYLI MacKay Short Duration High Income Fund
**Effective 8/28/24, MainStay MacKay High Yield Corporate Bond Fund was renamed NYLI MacKay High Yield Corporate Bond Fund
About Risk:
The Fund is not a money market fund and does not attempt to maintain a stable NAV. The Fund’s net asset value per share will fluctuate. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. These risks may be greater for emerging markets.
Floating rate loans are generally considered to have speculative characteristics that involve default risk of principal and interest, collateral impairment, borrower industry concentration, and limited liquidity. Issuers of convertible securities may not be as financially strong as those issuing securities with higher credit ratings and are more vulnerable to changes in the economy. The Fund may invest in derivatives, which may increase the volatility of the Fund’s NAV. Funds that invest in bonds are subject to interest-rate risk and can lose principal value when interest rates rise. Bonds are also subject to credit risk, in which the bond issuer may fail to pay interest and principal in a timely manner, or that negative perception of the issuer’s ability to make such payments may cause the price of that bond to decline.
Consider the Funds’ investment objectives, risks, charges, and expenses carefully before investing. The prospectus and summary prospectus include this and other information about the Funds and are available by visiting the Prospectus. Read the prospectus carefully before investing.
Securities distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, Member FINRA/SIPC.
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