Is it Still High Times for High Yield?

After the volatility-laden tumult seen towards the end of 2018, investors are starting to dip back into the high yield waters thanks to life in U.S. equities.

Exchange-traded fund (ETF) flows are showing that a risk-on sentiment is slowly creeping back into the markets, making the case for high-yield bond funds again. A volatile end to 2018 no doubt elicited a risk-off sentiment that permeated throughout the capital markets, but thus far in 2019, high-yield bond funds experienced an aggregate one-month inflow of $2.2 billion, according to data from XTF.

Names like the iShares iBoxx $ High Yield Corp Bond ETF (NYSEArca: HYG) have been leading the recent charge for high yield. According to data from XTF, fund flows within the past month have topped over $1 billion for HYG.

However, the risk of corporate default looms and this could be what ultimately sends the economy into a recessionary state.

Recession Risk from Corporate Debt Default

According to Guggenheim Partners’ Scott Minerd, a spike in corporate defaults could be exactly what causes the party to end for all markets. The amount of corporate indebtedness has reached unprecedented levels, which has made these companies more susceptible to rising interest rates or worse, a recession.