Perhaps the question advisers are being most persistently presented with right now is how to position the portfolios of clients that have income as a priority at a time of materially higher inflation.
For now, the inflation we have is accompanied by strong economic growth, creating conditions that may be quite close to ideal for high yield bonds, as the growth rate makes it more likely that the borrower can generate the revenue to pay the coupon and principal on the bond, while higher inflation makes lower risk bonds that pay a lower rate of interest relatively less attractive.
But high yield bonds are also very sensitive to the performance of the wider economy, and so are potentially increasing a client’s level of portfolio risk at just the time when volatility is high.
So is it time to turn to high yield bonds for income?
