Market disruptions highlight high current yields
The market turbulence of recent weeks has posed multiple challenges for the investor community. The global trade dispute has led to increasing recession concerns and fears that inflation might rise again. In such an environment, we find asset classes like hybrid bonds, CoCos, or high-yield bonds attractive due to their combination of high current yields and short duration.
The U.S. tariff announcements in early April 2025 ushered in a significantly more volatile market phase. While equity markets initially corrected sharply, the market currently does not seem to expect a worst-case scenario of a deep global recession. Whether this assumption holds true will be revealed in the coming weeks and months.
However, it is clear that a potential recession is not the only risk investors should keep an eye on. The global trade dispute, combined with stricter immigration policies in the U.S. and the historic fiscal package on this side of the Atlantic, is also leading to higher inflationary pressures.
Issuers in good shape
In this environment, we believe that high-yield bond asset classes with shorter durations are particularly popular. These can offer both high current yields and lower sensitivity to increasing inflation concerns. Additionally, the relatively stable development of fundamental data from issuers in the high-yield, CoCo, and corporate hybrid bond segments currently provides additional support.
Historically, issuers generally exhibit lower net debt and normalizing but still positive EBITDA growth. The healthy condition of issuers is also reflected in low default and distressed ratios, although these levels slightly increased last March due to global uncertainties.
In April 2025, risk premiums in the mentioned bond segments also increased: in the high-yield sector, spreads temporarily rose by approximately 176 basis points to 426 basis points. This spread level reflects a recession probability of 50 to 60%, already compensating for a significant slowdown in economic growth. CoCos and corporate hybrids have suffered significantly less so far. We attribute this to the still high demand in these asset classes and the good condition of individual issuers.
Due to ongoing uncertainty regarding future tariff policies, it is quite possible that spreads across all bond segments could temporarily widen again, especially if there are larger capital outflows in the individual asset classes – although there are no signs of this so far.
Significant buffer
In the high-yield bond sector, we focus on secured bonds from companies with solid fundamentals. In the event of bankruptcy or liquidation of a company, their creditors have priority over the claims of other bondholders and shareholders due to the collateral. Accordingly, they can hope for a greater chance of recovering their investment in the event of bankruptcy. Moreover, secured bonds generally protect their value better than regular high-yield bonds during an economic downturn due to their priority claim on the issuer's collateral. The long-term performance of secured high-yield bonds is quite comparable to the broader high-yield market.
Last but not least, the high current yields in all three asset classes can provide a buffer against potential price declines. Against this backdrop, the timing for entering the mentioned asset classes could appear attractive – as long as current yields remain at their current high levels. The analysis below exemplifies the yield potential of global high-yield bonds in various interest rate phases.
Current yields as an indicator for future returns – a historical analysis
The graphic shows that a high current yield at the time of investment can be a potential indicator of future returns. Even in unexpected stress scenarios like the COVID crisis or the energy crisis, high current yields can provide a sufficient buffer to achieve positive performance over three years.
Specific risks to keep in mind
The overview below (in CHF, as of April 21, 2025) also impressively highlights the potential of the mentioned asset classes. The high yield potential comes with higher investment risks, including credit risks and potential capital losses. In the case of corporate hybrids and CoCos, there are additional segment-specific risk factors due to the subordination of the bonds and extension risk, which need to be actively managed.
With our proven, active fund solutions, our dedicated experts manage a fund in each of the mentioned asset classes, providing the investor community with easy access to these attractive asset classes.
High current yields with low duration: an overview of selected bond segments (in CHF)
News on selected bond funds
| Swisscanto (LU) Bond Fund Committed COCO |
Link |
| Swisscanto (LU) Bond Fund Committed Corporate Hybrid |
Link |
| Swisscanto (LU) Bond Fund Committed Secured High Yield | Link |
| Swisscanto (CH) Pension Bond Fund Responsible Global High Yield (Professional / institutional investors, Switzerland) | Link |
| Swisscanto (LU) Bond Fund Sustainable Global High Yield |
Link |
Legal disclaimer
Legal disclaimer
Past performance is no indication of current or future performance, and the performance data do not take account of the commissions and costs incurred on the issue and redemption of units.
Legal notice on the charts: Source Ice Data Indices, LLC ("ICE Data"), is used with permission. ICE is a registered trademark of ICE Data or its affiliates and BOFA is a registered trademark of Bank of America corporation licensed by Bank of America corporation and its affiliates ("BOFA") and may not be used without Bofa's prior written approval. ICE Data, its affiliates and their respective third party suppliers disclaim and any and all warranties and representations, express and/or implied, including any warranties of merchantability or fitness for a particular purpose or use, including the indices, index data and any data included in , related to, or derived therefrom. Neither ICE Data. Its affiliates nor their respective third party suppliers shall be subject to any damages or liability with respect to the adequacy, accuracy, timeliness or completeness of the indices or the index data or any component thereof, and the indices and index data and all components thereof are provided on an "as is" basis and your use is at your own risk. ICE Data. Its affiliates and their respective third party suppliers do not sponsor, endorse, or recommend Zürcher Kantonalbank, or any of its products or services.
This document only serves advertising and information purposes, is for distribution in Switzerland only and is not directed at persons in whose nationality or place of residence prohibit access to such information under applicable law. Where not indicated otherwise, the information concerns the collective investment schemes under the law of Luxembourg managed by Swisscanto Asset Management International S.A. (hereinafter "Swisscanto Funds"). The products described are undertakings for collective investment in transferable securities (UCITS) within the meaning of EU Directive 2009/65/EC, which is governed by Luxembourg law and subject to the supervision of the Luxembourg supervisory authority (CSSF). This document does not constitute a solicitation or invitation to subscribe or make an offer to purchase any securities, nor does it form the basis of any contract or obligation of any kind. The sole binding basis for the acquisition of Swisscanto Funds are the respective legal documents (management regulations, sales prospectuses and key information documents (PRIIP KID), as well as financial reports), which can be obtained free of charge at https://products.swisscanto.com as well as at Swisscanto Fondsleitung AG, Bahnhofstrasse 9, CH-8001 Zurich (also acting as representative of the Luxembourg Swisscanto funds in Switzerland) or in all offices of Zürcher Kantonalbank. Paying Agent for the Luxembourg Swisscanto funds in Switzerland is Zürcher Kantonalbank, Bahnhofstrasse 9, CH-8001 Zurich. Information about the sustainability-relevant aspects in accordance with the Regulation (EU) 2019/2088 as well as Swisscanto's strategy for the promotion of sustainability and the pursuit of sustainability goals in the fund investment process are available on the same website. The sub-fund referred to in the document is subject to Article 9 of Regulation (EU) 2019/2088. The distribution of the fund may be suspended at any time. Investors will be informed about the deregistration in due time. The investment involves risks, in particular those of fluctuations in value and earnings. Investments in foreign currencies are subject to exchange rate fluctuations. Past performance is neither an indicator nor a guarantee of future success. The risks are described in the sales prospectus and in the PRIIP KID. The information contained in this document has been compiled with the greatest care. Despite professional procedures, the correctness, completeness and topicality of the information cannot be guaranteed. Any liability for investments based on this document will be rejected. The document does not release the recipient from his or her own judgment. In particular, the recipient is recommended to check the information for compatibility with his or her personal circumstances as well as for legal, tax and other consequences, if necessary, with the help of an advisor. The prospectus and PRIIP KID should be read before making any final investment decision. The products and services described in this document are not available to U.S. persons under the relevant regulations (in particular Regulation S under the U.S. Securities Act of 1933).
Data as at (where not stated otherwise): 11.2024
© Zürcher Kantonalbank. All rights reserved.
