He says one of the issues that could impact high-yield bonds in the coming years is the refinancing that companies will have to do.
This means that many companies who issued high-yield bonds will have to repay those and issue new bonds in the coming years; because this has not happened yet, the companies have continued to repay at the low interest rate available when they issued the bonds, but will have to accept much higher rates soon, and this could lead to companies defaulting on their debt.
Sullivan says given the present highly uncertain climate, he prefers to own companies where there is greater “visibility” about profits, rather than companies which are expected to earn the bulk of their returns in the future, and right now, that points him away from US equities.
David Thorpe is investment editor at FTAdviser
