淺談短存續期高收益債券

• US high yield bonds were one of fixed income’s top performers in 2023 but yields remain high by historical standards.
• Current yields in the US high yield bond market have historically been associated with strong returns in the ensuing 12-24 months.
• Short maturity (1-2yr) high yield bonds could offer access to elevated yields but typically with lower volatility.
• Healthy fundamentals such as low net leverage and healthy interest coverage can help defend returns against a more severe slowdown than is currently anticipated.

Looking at asset performance across 2023 it was little surprise to see US high yield bonds topping the fixed income charts, far outstripping the returns on perceived lower risk assets such as US investment grade corporate bonds and US Treasuries.¹

High yield bonds (bonds issued by companies with credit ratings below BBB-) pay investors a credit spread over “risk-free” assets (such as US Treasuries) to compensate for expected losses stemming from defaults, plus an extra amount to reflect the greater volatility of the asset class. Investor appetite for high yield bonds thus tends to increase as their assessment of economic conditions improves, since a stable or growing economy reduces the risk of corporate defaults. This can occur both in the primary market, where investors demand lower yields for newly issued bonds, and in the secondary market, where increased demand for high yield bonds sees prices rise and yields fall.

In this context, high yield’s recent outperformance has partly reflected fading expectations of a US recession. At the beginning of 2023, markets were still unsure where and when US interest rates might peak, and whether the lagged effect of substantial rate hikes from the US Federal Reserve would lead to an economic downturn as companies faced mounting funding costs. But with inflation coming down steadily and economic data seemingly holding firm, markets have become increasingly confident that US interest rates have peaked and the economy will avoid the sort of “hard landing” that would trigger a sharp rise in high yield default rates.

In our view, US high yield bonds offer competitive yields and healthy fundamentals. In addition, shorter maturities could provide better risk-adjusted returns in an environment of uncertainty around the strength of the US economy.

For the broader US high yield market, yields remain just under 8% after the recent sharp rise in interest rates.² According to a 2022 study by JP Morgan analysing 35 years of performance data, this bodes well for future total returns (see Exhibit 1). When high yield bonds have been in the 8-9% range, returns over the ensuing 12-24 months have historically been in the mid to high single digits, on average.

Under classic “late cycle” conditions, when interest rates are peaking and markets would typically begin to price in a coming recession, investors tend to become wary of high yield bonds as lower quality credits are more vulnerable to the higher cost of debt.

In response, the credit spread high yield bonds pay over “risk-free” assets such as US Treasuries tends to widen (with bond prices falling) as investors demand more compensation for the rising risk of high yield issuers defaulting.

However, credit fundamentals can help investors gauge the financial strength of high yield issuers, and today several of these metrics suggest the sector can cope with tighter conditions:

• Low net leverage – Debt as a proportion of equity or earnings is a key measure of financial strength for high yield issuers. As of end-Q3 2023, net leverage (a measure of debt divided by cash profit) across US high yield issuers was 3.44x, above the lows of late 2022 but also well below previous peaks of around 5x in 2021 and 4.7x in 2016-17.³
• Healthy interest coverage – The amount of cash firms have on hand to pay the interest on their debt can be expected to deteriorate given higher refinancing costs, but it is starting from a healthy level as issuers did an impressive job of extending maturities on attractive terms in 2020 and 2021. As of end-Q3 2023, interest coverage across US high yield was around 5x – still well above dips below 3.5x in 2011, 2013 and 2016.⁴
• Low maturity wall – High yield investors keep a close eye on when maturing bonds will require issuers to refinance at current market levels (widely known as the “maturity wall”). Currently US high yield issuers’ near-term refinancing obligations are low by historical standards (see Exhibit 2), with only USD 115.3 billion of bonds maturing in 2024-2025.⁵
• Lower CCC exposure – Today’s US high yield market includes a lower-than-normal exposure to CCC rated bonds, which have historically had higher default rates than higher-quality bonds.⁶

Within high yield bonds, shorter maturities benefit from two favourable characteristics.

 

1) A historically better risk-return ratio than longer dated bonds

The short end of the US high yield market (as measured by the 1-3 year US High Yield Index) has provided comparable returns to the broader US high yield market, but with significantly lower volatility
(see Exhibit 3).

One reason for this is a phenomenon known as “pull-topar”. As a bond approaches its maturity date, its price will “pull” towards its par value as default risk becomes increasingly negligible (this occurs whether the bond has risen or fallen in price since it was issued). This effect is more powerful in shorter maturity bonds since they are closer to the maturity date when bondholders are repaid at par. In other words, shorter maturity high yield bonds are less exposed to a deterioration in economic conditions that would increase default expectations.

Short duration high yield bonds have the potential to generate attractive upside with lower risk than the broader high yield market – including less price volatility, less drawdown and lower interest rate risk.

One way to use these bonds in a portfolio is to complement an allocation to full-market high yield. They can potentially enhance portfolio diversification by offering a narrower range of annual returns, while providing an asymmetric return profile. 

Short duration high yield bonds can also be a good complement to a core fixed income allocation. Their returns are generally not closely correlated to those of core bonds, which can help to cushion negative performance outcomes and reduce overall volatility.

Of course, active management and credit selection remains an important factor. The risks in high yield can vary significantly by credit rating, with a significant step-up in risk having been observed in past cycles where bonds are rated B- or lower.

After their strong recent performance high yield spreads may struggle to tighten much further in the medium term. But we think today’s elevated yields – especially at shorter maturities – still offer value.

Of course, active management and credit selection remains an important factor. The risks in high yield can vary significantly by credit rating, with a significant step-up in risk having been observed in past cycles where bonds are rated B- or lower.

After their strong recent performance high yield spreads may struggle to tighten much further in the medium term. But we think today’s elevated yields – especially at shorter maturities – still offer value.

¹ 彭博、ICE美林美銀及摩根大通指數、安聯投資，數據截至2023年12月29日。
² 彭博，數據截至2023年12月29日。ICE美銀美林美國高收益債券指數代表高收益債券。
³ 摩根大通，數據截至2023年10月。
⁴ 摩根大通，數據截至2023年10月。
⁵ 美銀高收益債券圖冊，數據截至2023年12月29日。
⁶ 美銀美林環球研究，ICE數據指數，數據截至2023年7月。