The high yield market, as measured by the Bank of America Merrill Lynch U.S. High Yield Master II Constrained Index, was up 1.86% for the month of April, as the high yield market continued to benefit from stable U.S. economic growth and steady asset reflation driven by the Federal Reserve and global central banks. A major development in global monetary easing policy came from the Bank of Japan in April as it announced a massive stimulus plan to inject approximately $1.4 trillion into Japan’s economy over the next two years. This plan should have a positive impact on growth in Japan as well as growth in the global marketplace.
The high yield market continued to grind tighter during the month. In April, U.S. economic data supported improved growth while the Fed reinforced its position to keep Treasury rates low until the economy shows a more sustained improvement. Market participants remain focused on stimulative monetary policy, historically low interest rates, steady corporate earnings, and an overall improving U.S. economy. The concerns from March related to the sequestration and tax hikes diminished as April experienced a rebound in U.S. jobs data and the U.S. equity markets reached new highs.
Looking forward, we remain constructive on high yield fundamentals, and believe that they are supportive of current market spread and yield levels of 4.55% and 5.26%, respectively, as measured by the Bank of America Merrill Lynch U.S. High Yield Master II Constrained Index. The current state of credit fundamentals, alongside a slowly improving economic backdrop, is consistent with our outlook for a low high yield default environment. A modest pace of economic growth, low capital-raising needs, accommodative central banks and monetary policy, and a steady demand recovery in the U.S. are all supportive of profitability for high yield issuers.
High yield bonds are subject to greater price volatility and may be less liquid than higher rated
securities; are subject to greater sensitivity to interest rate and economic changes. As interest rates rise, the value of debt securities decreases; whereas prepayment risk tends to occur during periods of declining interest rates. The decline in an issuer’s credit rating can negatively affect the value. International investing involves certain risks and increased volatility not associated with investing solely in the U.S. These risks include currency fluctuations, economic or financial instability, and lack of timely or reliable financial information or unfavorable political or legal developments. These risks are magnified in emerging markets. Distressed securities are speculative.
Investors should carefully consider the investment objectives, risks, charges and expenses of each Fund before investing. This and other important information is contained in the Nomura Partners Funds, Inc. prospectus, which may be obtained by contacting your financial advisor, by calling Nomura Partners Funds at 1-800-535-2726, or visiting our website at nomurapartnersfunds.com. Please read the prospectus carefully before investing.
The Bank of America Merrill Lynch U.S. High Yield Master II Constrained Index tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. One cannot invest directly in an index.
This material contains the current opinions of the author, which are subject to change without notice. This material has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information used to compile this report has been obtained by sources deemed to be reliable, but its accuracy and completeness are not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Past performance is no guarantee of future results.
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