"There are segments of the high-yield market that do not compensate you for the risk you are taking by owning them," says BlackRock portfolio manager Michael Fredericks. Average spreads to Treasurys have fallen to just 352 basis points, the lowest since prior to the financial crisis.
There's still value, insist some managers, you just have to know where to look. "The game has changed in the high-yield market and it has become more sophisticated than it was two or three years ago," says another fund manager. Barclays chief of credit strategy Brad Rogoff, for instance, is spotting value in the high-yield paper sold by mining and retail companies, as well as the dollar-denominated bonds sold by European companies. The so-called "yankees" are on average cheaper than the boarder market, he says.
Another option is that of emerging market high-yield debt, with average yields of 7.6% more than 200 basis points higher than that of U.S. paper.