The high yield bond market has stabilized since worries about falling energy prices dragged it down last winter. Richard Lindquist, head of high yield at Morgan Stanley Investment Management, says the good times will continue as long as defaults stay low and the Federal Reserve does not spook the market. ‘At the end of 2014 people didn’t know where the bottom was in oil prices, so to some extent a big part of the selloff was justified,’ says Lindquist. ‘It really forced people to do research on their energy holdings and find out which companies had good hedges and what type of access to the capital markets they had.’ Now that the troubled energy companies and their potentially problematic paper have been identified, Lindquist says fund managers and investors have regained confidence in the overall high yield sector. He says he is finding value in the industrial sectors that are still slowly recovering from the 2008 market collapse, as well as some consumer durable names which are growing with the economy. ‘Our view is that default rates are likely to remain contained and that high yield issuers, just like investment grade counterparts, will be equally supported by the economy,’ says Lindquist.
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