Russell: The attractive appeal of high yield credit

High yield credit is looking attractively priced, according to Russell Investments, as a result of the COVID-19 shock and the oil price collapse has caused spreads to widen.

In an executive outlook, the firm explored its positioning for this turbulent time and where it felt value could be found in markets.

This included high yield credit where spreads had widened sharply in recent days and it was expected there was further to go before a rebound.

“High yield credit is now very attractively priced after selling off as a result of the COVID-19 shock and oil price collapse. Energy companies make up a large share of the high yield bond market. The spread to the US Treasuries on 19 March was close to 900 basis points.

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“The spread could widen further if the virus news deteriorates but this historically has been a good entry point into high yield exposure, although there is obviously considerable uncertainty in the market and the liquidity risk that investors will need to consider in deciding whether to take advantage.”

Looking at the equities, the team said, the attractively-valued geographic regions included European and UK equities while emerging markets would benefit from the reduction in US/China trade war tensions.

“UK and Eurozone equities are attractively valued. Europe’s high weighting to cyclical stock should help it outperform in the recovery.

“Emerging market equities are attractively valued and will gain the additional benefit of reduced trade war tensions.”