When global growth strengthens credit dynamics generally improve, especially for those most sensitive to the economic cycle. For high yield investors this creates an important investment theme as established companies get upgraded, causing the spreads of their debt relative to government bonds to tighten, presenting new opportunities.
In 2015 and 2016, companies in the oil and gas, and mining, sectors were affected particularly badly, but this turned around as commodity prices stabilised and then started to rise. Companies that controlled costs and paid down debt have since benefited. If the momentum in the global economy continues into 2018, then this powerful technical dynamic within the high yield market should continue.
Uli Gerhard – portfolio manager. Insight Investment, a BNY Mellon company