Portfolio Positioning Update: Neutral On High Yield Bonds, Defensive On Equities

Call#1: Remain neutral on US high yield bonds I’ve been getting a lot of questions about high yield bonds recently. And no wonder: The spread between high yield bonds and comparable Treasuries is now roughly 7%. It’s no surprise that investors are taking a look at high yield as a way to enhance income. Not so fast, unfortunately. There can certainly be a place for high yield in a fixed-income portfolio. But the extra yield comes with more risk, something investors need to take into account. There are two important things to consider with high yield: first, these bonds are more volatile than Treasuries — or even investment grade bonds — of a similar duration; and second, high yield tends to be particularly sensitive to economic growth. As such, these bonds typically perform well when the economic environment is stronger, unlike Treasuries. It is this very concern over the sustainability... Read more