This comes despite the increase in risk aversion by investors leading to a sell-off in the asset.
According to Kevin Gardiner, head of global investment strategy at Barclays Wealth, spreads have widened since the end of last month to as much as 700 basis points in the past week before settling at 160 bps.
“Downside risks to our central scenario for global economic growth to pick up in the second half have weighed on sentiment as faltering growth leaves high yield more vulnerable to defaults,” he said.
“Currently, the global 12-month trailing default rate is 1.9% and Moody’s had forecast for this to continue to level off over the next 12 months.”
Gardiner’s asset allocation remains underweight high yield credit though he believes the risk dumping in the early part of this month was overdone.
“These levels,” he added, “provide an attractive entry point for clients seeking coupon income as well as a total return and/or who are not already fully allocated in a balanced portfolio.”
Ordinarily, Gardiner explained, high yield is fairly correlated to developed market equities, but it has been lower since the sell off as developed equities tend to rebound quicker than high yield credit.
“Renewed equity volatility may cause spreads to widen further but our central scenario is that continued economic growth will lead to spread compression,” he concluded.
