Is the yield enough for the risk?
As with all investments, the return on offer has to match the risk you are taking — and look attractive compared to other investments on the market.
For Ben Yearsley, an investment consultant at Fairview Investing, the numbers have not added up.
He said: “Risk is the key word. While 8 per cent sounds good from high-yield bonds, you need some context around that. The yield on the two-year UK gilt is 4.55 per cent. Investment grade gets you about 6 per cent, and high-yield 8 per cent.”
This means that the spread— the extra you are getting paid from the risk-free gilt rate to the high-yield — is about 3 to 3.5 per cent.
Yearsley added: “This doesn’t seem enough when you consider that the outlook is mixed. What happens if rates aren’t cut? What happens if unemployment picks up?
I like bonds, but I think investment grade is probably the sweet spot: enough of a premium over gilts, but without the default risk of high-yield.”
Imogen Tew is a freelance financial journalist
