High-yield bonds: why is now the best time to invest?

During the CORUM L’EPARGNE press presentation in the presence of Frederic Puzin (founder of CORUM) and Olivier Becker (Bond expert), he stated that now is a good time to invest in high yield bonds, obviously, was chosen with caution. The asset manager, known for his SCPI (CORUM XL, CORUM Origin, CORUM EURION), has historically been a bond portfolio manager. CORUM L’EPARGNE has launched several bond funds, the yields of which are also regularly assessed. If the average yield on high-yield bonds in 2022 is currently negative, it means that the bond market has reversed. The average yield on high-yield bonds rose from 3% at the beginning of the year to 7% by mid-June. Attractive level of return for investors.

Bond funds: real participation in the economy

After reviewing the ideas for bonds, CORUM wanted to remind about the principles of bonds, the image of which in the minds of the youngest savers is often reduced. Bonds are financial loans granted to companies. The latter can borrow from banks or issue their debts on the market, as well as states with sovereign debt. Thus, capital borrowed by investors is actually used by the economy, unlike stocks, which, once placed on the stock market, no longer serve the economy directly. Finally, the bond market in Europe allowed the company to infuse liquidity twice (154 billion issues) against only 74 billion euros in the stock market (IPO).

High-yield bonds, why is it time to invest?

Companies need financing for development, and banks remain cautious. Therefore, high-yield bonds make it possible to provide alternative financing to these companies whose rating (rating agencies) is not the best on the market. For investors, it is about loan capital with rates of return above inflation. The time has come, as the current economic uncertainty is strong, banks are reluctant to finance companies whose ratings are not the highest. Therefore, companies wishing to borrow in the bond market must offer an attractive rate of return. Opportunity for investors.

Misconceptions about bonds: companies with lower ratings of rating agencies are not on the verge of bankruptcy © CORUM

High yield bonds: average yield 7%

Thus, as interest rates rise, companies wishing to borrow must offer a sufficiently attractive rate of return to attract investors. CORUM points out that the current additional margin is 500 basis points (5%), which should be added to the nominal rate of German government bonds, which is the benchmark for risk-free positions. The average yield on high-yield bonds rose sharply in less than 6 months, from 3% in early 2022 to more than 7% by mid-June 2022.

© CORUM

How about overdue repayment?

Obviously, without high risk there is no high return. CORUM’s asset manager relies on statistics to reassure investors. The historical default rate, excluding the financial crisis, would be 1%. And there again the manager of the bond fund does his job and chooses the bond issues. It depends on him not very often to make mistakes with the supports.

Myth: Are the risks of the high-yield bond market overestimated? © CORUM

How to invest in high-yield bonds?

CORUM L’EPARGNE offers the following bonds. These funds are available directly, through a securities account, or for depositors to optimize their investments, through a life insurance contract CORUM LIFE, whose various management profiles allow you to combine SCPI funds and bonds.

  • Butler European High Yield Bond UCITS Fund (BEHY),
  • Butler Credit Opportunities Fund UCITS Fund (BCO),
  • CORUM Butler Short Duration Bond UCITS Fund (CBSD),
  • CORUM Butler Smart ESG Fund (SMART ESG).

WARNING on underwriting bonds

Subscribing to a bond means risking borrowed capital. The proposed annual fixed interest rate is not guaranteed. Investors are exposed to the following risks: the risk of bankruptcy of the bond issuerliquidity risk of securities (it may be difficult to resell placed securities), inflation risk, risk of changes in the price of placed securities (for fixed rate bonds plus higher market rates, the lower the price of the security, and vice versa), currency risk if bonds relate to a currency other than the euro.

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