Yields on Asian high yield corporate bonds are higher than those of many other assets classes while spreads have room to tighten and compensate for possible upward pressure on US interest rates.

Attractive yields in a low-yield environment 

Yields on 5-year US Treasuries and German Bunds stood at 1.69% and 0.31%, respectively, at the time this document was compiled. The economic environment of global subdued nominal growth and low short-term interest rates suggests that yields on the safest government bonds could remain low for quite a while.

The current environment has produced record low borrowing costs for the largest companies. On 1st May 2014, Apple sold a 3-year USD bond with a coupon of 1.05%, a spread of only 18 basis points above the comparable-duration US Treasury yield!

As a result of the low coupons on debt issued by the safest governments and investment-grade companies, investors face an important dilemma. Either they must adjust downward the expected returns on their new investments in this new world of low yields, or they must accept additional risks in order to maintain the previous yield levels on their fixed income portfolios. More and more, investors have done the latter piling money into emerging market debt, ultra long-dated bonds and high yield bonds.

Asian high yield corporate bonds are typically denominated in USD and issued by companies located in Asia ex-Japan that have credit ratings below investment grade or are not rated. For investors, these bonds offer an attractive yield and the opportunity to invest into some of the largest and fastest growing economies of the world.