What do high yield bonds and mushrooms have in common?

May 14, 2019

While economic growth appears to be slowing, we do not believe we are likely to be headed over a cliff edge in a manner similar to 2008. While markets sold off aggressively in the fourth quarter, they have since stabilized and we think it is unlikely the U.S. will fall into recession this year.

We believe when growth is slowing it can stop company management teams from being impulsive; they become more cautious and careful in their borrowing and spending, in our view.

We think investing in the current high yield bond market can be likened foraging for mushrooms – it’s all about the selection. You cannot pick any mushroom in the woods and expect to be ok upon consumption but if you are discerning and do your research you can improve your chances.

Over the past two years, there were so many buyers of high yield fixed income that it was easier for less robust companies to sell securities. In the current market environment, we think it wise to be pickier than ever and to not be constrained by a benchmark. For example, if we don’t like a high yield sector, as with mushrooms, we avoid it altogether.

Uli Gerhard, portfolio manager, Insight Investment, a BNY Mellon company

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All investments involve risk, including the possible loss of principal.

Charts are provided for illustrative purposes and are not indicative of the past or future performance of any BNY Mellon product.

Bonds are subject to interest rate, credit, liquidity, call and market risks, to varying degrees. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes and rate increases can cause price declines.

High yield bonds involve increased credit and liquidity risk than higher rated bonds and are considered speculative in terms of the issuer’s ability to pay interest and repay principal on a timely basis.

GDP: Gross Domestic Product is a monetary measure of all the final goods and services produced by a country over a period of time, often annually.

BNY Mellon Investment Management is one of the world’s leading investment management organizations and one of the top U.S. wealth managers, encompassing BNY Mellon’s affiliated investment management firms, wealth management organization and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally.

Investment advisory services in North America are provided through two different investment advisers registered with the Securities and Exchange Commission (SEC), using the brand Insight Investment: Insight North America LLC (INA) and Insight Investment International Limited (IIIL). The North American investment advisers are associated with other global investment managers that also (individually and collectively) use the corporate brand Insight Investment and may be referred to as “Insight” or “Insight Investment.”

Views expressed are those of the advisor stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change. This information contains projections or other forward-looking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or expectations will be achieved, and actual results may be significantly different from that shown here. The information is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Please consult a legal, tax or investment advisor in order to determine whether an investment product or service is appropriate for a particular situation. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. BNY Mellon Investment Adviser, Inc., Mellon and BNY Mellon Securities Corporation are subsidiaries of BNY Mellon. 

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