Outlook 2014: Global high yield - Wes Sparks, Head of US Fixed Income, previews the year ahead

Summary:

• Total returns in high yield bonds are likely to be only modestly positive in 2014 - probably lower than coupon income - yet, high yield should outperform other fixed income asset classes just as it did over the past two years.
• Negative returns are unlikely - due to a continued benign outlook for defaults, solid credit fundamentals, and the ability for spreads to compress further and partially absorb any increase in government bond yields.
• Potential positive catalysts in 2014 include stronger economic growth leading to further improvements in corporate profitability, an increase in M&A activity with many high yield companies being acquired by larger higher-rated companies, bond tender offers, and continued deleveraging events such as equity IPOs.
• The pace of economic growth in the US and changes in Fed policy as well as concerns about emerging market economies could be sources of volatility