A feature in industry publication Financial Adviser has suggested that many fund managers are switching to high yielding bonds (in simple terms interest producing loan stock to companies) rather than lower yielding and more secure Government debt (gilts). This is because they offer great returns that Gilts as they carry more risk.
People are chasing higher rates in view of basic interest rates increasing.
Our view
We expect around another 0.75% in interest rate increases in the next 9 months. Therefore, our view is that High Yield Bonds will deliver valuable income (interest) but when Base Rates do go up you will suffer capital losses.
Be careful if buying High Yield Bonds - is there a reason that they are sometimes known as "junk" bonds in the USA.