Bond Bull Party To Carry On
PGIM Fixed Income’s Greg Peters sees a broad-based fixed-income story. Watch this video or read PGIM Fixed Income’s quarterly outlook to learn more.
After a banner year for high yield bonds in 2023, tighter credit spreads are reducing but not eliminating investment opportunities in 2024. With spreads likely remaining rangebound for the time being, PGIM Fixed Income’s Loic Depierreux emphasised the value that active managers offer high yield investors in today’s environment.
‘We do believe that active management with a good bottom-up research process can outperform.’ Depierreux said.
Elevated yields also offer high yield investors an alternative to dividend-paying stocks. Hovering around 8%, high yield bond yields now exceed the equity dividend yield for the first time in 20 years, excluding the Global Financial Crisis in 2008-09.
‘We’re at the point where equities are no long cheap relative to bonds,’ Depierreux said.
PGIM Fixed Income expects the default rate for high yield issuers to be approximately 3% over the next year, which is below the long-term average. With fundamentals in the sector remaining stable, PGIM Fixed Income maintains an overweight high yield bond allocation to the United Kingdom and a slight underweight allocation to Europe.
‘We see spreads in the UK as a bit more attractive,’ Depierreux said.
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