Just like the first quarter of 2018, high-yield bond strategies led a Morningstar Inc list of top fixed-income performers again during the second quarter, taking seven out of the top 10 spots. As investors continue to be a in a risk-on mentality, a shift away from save haven government debt has been accompanied by high-yield bond strategies outperforming their investment-grade counterparts by an average of 2%.

“In the current environment, where the economic and corporate backdrop remain promising, corporate bonds should fare better than developed market sovereign debt,” said Kerry Craig, global market strategist at J.P. Morgan Asset Management.  “Similarly, even if the anticipated total returns are modest, the riskiest section of corporate bonds, known as “junk bonds”, should beat higher-grade corporate bonds.”

 Additionally, Craig cites that its been high-yield, below-investment grade debt outperforming its higher credit quality peers.

“More favourable fundamentals still bode well for the high-yield segment of the corporate bond market,” said Craig. “Investment grade credit indices have experienced a deterioration in credit quality and a commensurate rise in duration and leverage adding to vulnerabilities as interest rates rise.”

“The US high-yield market hasn’t experienced the deterioration in quality of its higher-quality cousin, as both the duration and the quality of the index have remained stable. The still-vibrant US economy will support high-yield corporate finances, keeping spreads contained,” Craig added.

For more trends in fixed income, visit the Fixed Income Channel.