The interest rate environment has remained remarkably stable. The yield on the 10-year U.S. Treasury has been hovering around 2.50% as investors have continued to buy bonds amid persistent geopolitical unrest.
Low and stable inflation. Last week provided more evidence that inflation is not an imminent threat. U.S. consumer inflation was in line with expectations, up 2.1% year-over-year, while core inflation actually surprised to the downside with a 0.1% increase. This put the year-over-year number at 1.9%. Despite recent fears over higher prices, for now, core inflation remains well anchored at its 10-year average.
Given the amount of inflows into high yield in recent years, more outflows and volatility are certainly possible in the near term. But for investors with a longer time horizon, I would hold course. I still believe the supply/demand balance is favorable and that high yield continues to offer attractive yields relative to the alternatives.
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.
Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities.