Within the category of corporate bonds a distinction is made between safer investments and high yield bonds which however also have a high level of risk. However, recently the confidence of investors concerning the two classes is quite small, at least for euro bonds. Just as it is no longer so far the profile of someone who invests in high yield bonds rather than government bonds.
The interest in this asset class which usually consists of bonds with an S & P rating below BBB, has more than doubled in the last three years in Europe. The companies of the Old Continent become more and more deprived of access to credit from banks and penalized by a reduction in national rating so they have resorted to this type of mass bond issues, thereby boosting the market.
The most interesting sectors to invest in high yield securities are those of telecommunications, cabling, packaging and consumer goods. Remember though that this type of bond is only suitable for investors with a high risk appetite, ready to tackle even extreme volatility. The risks involved are derived from the close correlation between these bonds and interest rates, the possible lack of issuer’s ability to fulfill its commitment in the payment of interest and / or repayment of principal and finally the situation of general market liquidity. In a balanced portfolio that could be called prudent the share of high yield bonds should not exceed 5%.
