High Yield Bonds had a tough first quarter in 2022 as investors computed the impact of 3 interconnected factors on the asset class:
Current and expected inflation, in terms of input costs associated with the production and delivery of goods, and the provision of services.
2. Interest Rates
Central bank monetary policy, interest rate levels and expected rate rises. And the potential risk being discussed by multiple economists of potential policy mistakes by central bankers.
3. Geopolitical risks
Heightened geopolitical risks in both Europe and Asia and how that could translate into supply chain disruptions impacting critical production components (such as micro chips). In addition to the outlook for commodity supply and prices across energy, metals and agriculture.
However, despite negative 1Q22 total returns for the asset class, many investment managers that read the signs well, were able to find alpha in very specific niches, and attract the attention of the professional investor community.