Introduction

More than a year ago in Apr 2020, we wrote about the attractiveness of US High Yield Bonds (see article), when credit spreads had widened past 8%. Since then, credit spreads have tightened to 3%, resulting in a 19% return for US High Yield Bonds.

Today, we see value in hard currency Asian High Yield Bonds. At the Index level, credit spreads are at 9.4%, closing in to levels seen during the peak of the Mar-2020 Covid-19 sell-off and the 2011 European Debt Crisis, where credit spreads had topped out at 10-12%.

Historical backtesting implies >8% per annum returns over the next 1-3 years from current entry levels. However, compared with past Asia High Yield Bond sell-offs, the outcome for this occasion looks to be more binary (and hence riskier) given that the sell-off has largely been confined to the China Property Sector, Macau Casino Sector and Sri Lankan Govt debt.