Payden & Rygel: Long-term opportunity in high yield despite near-term volatility
Payden & Rygel believes high-yield bonds continue to offer attractive long-term opportunities, supported by generally solid issuer fundamentals and yields that remain compelling for patient investors.
Credit fundamentals among high-yield bond issuers remain broadly healthy. Leverage levels are manageable, and while recent macroeconomic data has been positive, interest coverage ratios provide an added margin of safety should economic conditions weaken.
'High yield valuations appear stretched on a spread basis, but yields in the 7% range remain attractive for long-term investors,” said Nick Burns, senior vice president and high yield portfolio manager. “We believe investors should focus less on broad sector calls and more on careful issuer selection.'
Payden & Rygel sees the current opportunity set as primarily issuer-specific rather than sector-driven. Traditional sectors such as energy may continue to face headline volatility, while newer areas of the market, including datacenters, require careful evaluation as they become a more meaningful part of the high-yield landscape.
Overall, Payden & Rygel remains positive on high-yield bonds over the long term and expects default rates to remain lower than those seen in leveraged loans or private credit. However, the firm cautions that high-yield bond prices may remain sensitive over the short to medium term to shifts in interest rates and macroeconomic headlines.
'Investors should be prepared for bouts of volatility,' added Jordan Lopez, managing director and head of the high-yield strategy group. 'But for those with a longer time horizon, high yield continues to offer a compelling income opportunity when paired with disciplined credit research.'