Simultaneously, he views the spread - the extra yield available for the extra risk - to be unattractive right now.
On the topic of spreads, Stealey agrees, noting that the spread offered to own a high yield bond instead of a government bond is presently 3 per cent, a level he describes as “not particularly attractive".
But he believes the absolute level of yield offered, at around 8 per cent is attractive, particularly in an environment where rates are being cut.
Stealey says the market “has done a good job” of pricing the better quality bonds at higher prices than the lower quality bonds, meaning there is no obvious valuation opportunity, even if the headline yields are attractive on the higher quality bonds.
Where are they allocating?
Chris Justham, managing director for intermediary solutions at 7IM, says that when rates were low, his company tended to focus their fixed income exposure on credit and short duration assets, but that the advent of higher rates has prompted the firm to increase its allocation to longer duration assets.
Paul O’Neill, chief investment officer at wealth management firm Bentley Reid, said one advantage of higher bond yields right now is that in multi-asset client portfolios, income coming from a lower risk portfolio enables more risk to be taken elsewhere.
These are all conversations that advisers and clients may well be having more of in the months to come.
