High Yield – Don’t Believe the Hype

Mark Cernicky
Senior Product Specialist
Principal Global Fixed Income

Some in the investing public have tried to explain the recent sell-off in high yield with charts similar to those below. What they’re trying to portray is that the recent growth in fixed income mutual fund assets has exploded and could potentially overwhelm the dealers’ balance sheets and thus their ability to provide liquidity. A lack of liquidity can be the enemy of investors, so the worry is that should fund flows quickly turn negative bond, prices will need to drop dramatically to entice new buyers and clear the market.

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