Invesco Bond Income Plus Limited: Half one 2021 high yield review

  • Favourable economic backdrop for high yield bond markets continued
  • High yield bond markets deliver positive returns in first half of 2021
  • Inflation concerns unsettled government and investment grade bond markets
  • Yields fall back slightly but compare favourably with government and investment grade bond markets

Market background

2021 continues to be a solid year for high yield bond markets. This is reflected by the ICE BofA European Currency High Yield Index* delivering 3.33% in sterling terms to the end of June, with a positive return in each calendar month.

*This index comprises approximately 870 individual high yield rated bonds issued in euros and sterling.

An encouraging economic outlook, combined with the prospect of ongoing central bank support, has contributed to the steady performance. Indeed, this backdrop has led some commentators to revive the ‘goldilocks’ analogy for risk markets amid optimism that benign conditions might remain ‘just right’ for potential positive returns.

Despite the relative calm, markets have continued to see periods of volatility. Much of this has been caused by fears of a significant and protracted increase in inflation triggered by stimulus programmes launched in response to the Covid-19 pandemic. Fears of further lockdowns and the possibility of central banks removing support or raising interest rates have also weighed on markets.

Higher quality bonds tend to be the most sensitive to potential changes in interest rates and so it proved as, according to ICE, Sterling investment grade corporate bonds returned -2.80% and UK Gilts -5.82% for the six-month period.

High yield markets did see a significant dispersion of returns with lower rated, and typically higher yielding, bonds significantly outperforming. ICE data showed that BB-rated bonds returned 2.52%, B-rated 4.0% and CCC & Lower returned 9.84% (all returns in sterling terms).


  % Return Yield to Maturity % Spread %
Index YTD 2021 2020 30/06/2021 31/12/2020 30/06/2021 31/12/2020
ICE BoA European Ccy HY Index (hedged to GBP) 3.33 3.16 3.04 3.34 3.04 3.65
ICE BoA European Ccy HY Index (hedged to GBP) BB 2.52 3.43 2.30 2.41 2.34 2.69
ICE BoA European Ccy HY Index (hedged to GBP) B 4.00 0.55 4.17 4.55 4.17 4.84
ICE BoA European Ccy HY Index (hedged to GBP) CCC & lower 9.84 8.44 7.61 9.26 719 985
ICE BoAML UK Gilts Index -5.82 8.84 0.78 0.33 - -
ICE BoAML Sterling Corporate Index -2.80 9.30 9.30 1.44 106 113

Source: Bloomberg, ICE. Data to 30 June 2021.

The yield on the ICE BofA European Currency High Yield Index fell from 3.34% to 3.04% over the first half of the year and experienced an all-time low of 2.96% in early June. Spreads, the additional yield achieved when compared to government bonds, continued to narrow and fell from 3.65% to 3.04%. Although spreads in the high yield space have tightened, they still provide a strong premium over investment grade bonds which is shown by the spread on the ICE BofA Sterling Investment Grade Corporate Index falling from 1.13% to 1.06%.

Figure 2
Macrobond chart
Source Macrobond, ICE. Data to 30 June 2021.

As yields now return to pre-COVID-19 levels, the demand for income generating assets remains high. This has led to record levels of high yield issuance as companies seek to build up cash surpluses, repair their balance sheets, or simply re-finance at a significantly lower cost. According to data from J.P.Morgan, European high yield issuance over the past six months was €93.1bn – already closing in on the record-breaking €103.3bn which was issued in the whole of 2020.  

Figure 3

High yield supply













YTD 2021

Issuance €bn













Redemptions €bn













Net €bn













# of bonds issued













Source: Bloomberg, ICE. Data to 30 June 2021.

Now most companies can access finance, and the global economy continues its recovery, default rates have fallen. According to Moody’s, as at the end of June only 28 issuers have defaulted year to date which is less than a quarter of the 114 defaults in the same period last year. Moody’s go on to forecast that their baseline trailing 12-month default rate will fall from the current 3.9% to 2.2% in June 2022.

Market outlook

Although yields are currently quite low and valuations are quite stretched in many cases, there are three reasons which suggests the backdrop for high yield bond markets is broadly positive.

  1. Fiscal and monetary policy remains supportive
  2. The improving trajectory of economies post-covid gives cause for optimism.
  3. Defaults are low and forecast to drop further.

From my perspective, given the low level of yields, some increase in volatility would be welcome as the portfolio is well-positioned for such a backdrop.

Finally, inflation is an important risk factor to monitor. I’ve responded to that by keeping interest rate sensitivity low in the portfolio and being very disciplined in sticking to the types of higher yielding bonds that the trust normally holds.

Risk Warnings

  • The value of investments and any income will fluctuate (this may partly be the result of exchange-rate fluctuations) and investors may not get back the full amount invested.


    The portfolio has a significant proportion of high-yielding bonds, which are of lower credit quality and may result in large fluctuations in the NAV of the product.


    The product uses derivatives for efficient portfolio management which may result in increased volatility in the NAV.


    The use of borrowings may increase the volatility of the NAV and may reduce returns when asset values fall.


    The product may invest in contingent convertible bonds which may result in significant risk of capital loss based on certain trigger events.


    As a result of COVID-19, markets have seen a noticeable increase in volatility as well as, in some cases, lower liquidity levels; this may continue and may increase these risks in the future.

    When making an investment in an investment trust/company you are buying shares in a company that is listed on a stock exchange. The price of the shares will be determined by supply and demand. Consequently, the share price of an investment trust/company may be higher or lower than the underlying net asset value of the investments in its portfolio and there can be no certainty that there will be liquidity in the shares.


    If investors are unsure if this product is suitable for them, they should seek advice from a financial adviser. For details of your nearest financial adviser, please contact IFA Promotion at

Important information

  • This marketing communication is for discussion purposes only and is exclusively for use in the UK.


    All data is as at 30/06/2021 and sourced from Invesco unless otherwise stated.


    Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice. This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.


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