UK-based Baring Asset Management says that, despite recent strong performance, high yield bonds continue to offer investors an attractive level of income in a very low global yield environment. Looking ahead, it expects the asset class to continue to produce a superior level of income relative to other areas of fixed income.

The firm explains that high yield corporates continue to experience favourable conditions, with low interest rates allowing companies to refinance existing debt at low levels and strengthen their balance sheets. This means that high yield corporate default rates are at historical lows and Barings does not expect this to change over the coming months.

At the country level, Barings currently sees most potential in US and emerging market high yield. On a sector level, the firm remains cautious on the banking industry, as it believes its inherent structural problems have driven significant volatility over the past few months. Elsewhere, it has recently increased holdings in the services sector, which together with basic industry and energy comprise the largest sector weightings in the Baring High Yield Bond Fund. The firm expresses a clear preference for B-BB rated credits over CCC from a risk-return perspective.

As at mid-February, the running yield of the Baring High Yield Bond Fund stood at 7.0 per cent, compared to 2.0 per cent for 10-year US government bonds.