Doyle, who manages non-investment grade credit at the firm, argues that temporary technical factors are the reason for the struggles faced by the asset class of late.
“In our view, the recent weakness in the high yield market was largely driven by technical factors—not a reversal in underlying fundamentals,” Doyle said. “More specifically, geopolitical issues in Ukraine, Gaza and Portugal, coupled with the Argentinean bond default, negatively impacted investor sentiment,” he added.
Doyle noted that robust second-quarter GDP growth that triggered expectations that the U.S. Federal Reserve would tighten monetary policy sooner than previously expected had ‘added fuel to the fire.’
“Without question, geopolitical worries could remain elevated and the high yield market, like all asset classes, is susceptible to non-fundamentals driven volatility,” Doyle continued. “What's more, lower dealer inventories of high yield bonds have removed a buffer, which had historically dampened fund-driven movements in the market,” he added.
According to Doyle, the high yield market experienced merely a short-term correction’ and some profit-taking therefore he sees a quick rebound as probable.
“Generally speaking high yield performance is driven by defaults and economic growth; we're hard pressed to see a scenario where defaults significantly increase over the next 18-24 months,” he explained.
