Pierre Ceyrac: «Moderate Growth is Enough for the High-Yield Market»

pierre ceyrac: «moderate growth is enough for the high-yield market». high-yield bonds delivered double-digit total returns in 2024, in part because refinancing has mostly gone smoothly thanks to falling interest rates. however, in response to u.s. tariff policy, many investors have recently pulled out of riskier assets. pierre ceyrac, portfolio manager at aviva investors, is still assessing the effects on the global economy—and hopes a recession can be avoided. it was actually not that long ago that finews.com interviewed pierre ceyrac, portfolio manager for high-yield bonds at aviva investors. at the time, the fixed-income specialist was in zurich on a roadshow for his two global high yield bond funds—one with longer duration and one with shorter duration (duration adjusted for coupon payments), both dollar-based. around $4 billion are invested in the two funds. the top controversial topic was germany’s suspension of its debt brake, which paves the way for massive defense and infrastructure spending. u.s. tariff policy also jolts the high-yield bond market. back then, spreads between high-yield and safe government bonds were historically tight—a result of the asset class’s strong performance since the end of 2023. in the meantime, the announcement of the new u.s. tariff policy has shaken stock markets and the high-yield bond segment. by definition, this market includes issuers rated below investment grade by rating agencies, i.e., bb+/ba1 or lower. in times of crisis, it’s a familiar pattern that investors seek safety and liquidity, avoiding riskier assets. this reassessment of risk has led to a significant widening of spreads in the hy market as well. why the high-yield market fears recession signals. so finews.com reached out to ceyrac again, who had returned to aviva’s london headquarters, to ask how he and his four colleagues—including a specialist focused solely on distressed securities—were experiencing these turbulent times. ceyrac and his team are still evaluating the impact of measures and countermeasures on the economy. «the hy markets don’t need strong economic growth, but they hate it when we head toward a recession,» he explains. «that’s when spreads could widen further, as they tend to anticipate default rates nine to twelve months in advance.». reducing risk before the sell-off. so far, dollar-denominated hy bonds with low credit ratings (triple-c) have reacted most strongly to the tariff conflict. spreads in this segment have widened by over 180 basis points. in euro-denominated hy bonds, the increase was somewhat smaller. ceyrac says he reduced risk in his funds in early april, before the sell-off began, and now holds a larger cash position. this gives him room to maneuver and re-enter the market when the time is right. dollar bonds dominate the market. despite the trump shock and related turmoil, ceyrac remains committed to his asset class and investment philosophy. he still favors the european segment, even though he is aware of its strong correlation with the u.s. market. his universe consists of about three-quarters dollar-denominated hy bonds, with the rest mostly in euros. the issuers come from all industries, including regular companies and financials. while banks and insurers are usually rated investment grade, they often issue subordinated bonds with speculative ratings for regulatory reasons—bonds with equity-like characteristics, such as the additional tier 1 (at1) bonds that drew attention during the credit suisse collapse. comprehensive analysis. «our investment approach is based on fundamental analysis, but we also take quantitative indicators into account,” the portfolio manager emphasizes. first, the risk contribution of the hy asset class to a client’s portfolio is assessed. then, a comprehensive analysis follows. “we look at everything: the issuer’s history, absolute and relative valuation of a bond, spread development, supply-demand dynamics, defaults, the issuer’s liquidity, market liquidity, etc.». only a small portion of the bonds in the fund fall into the distressed category. «we are not a vulture fund specialized in that. but we do have antonio gurrea, an expert in this segment, whose input enhances our decision-making process,» ceyrac explains. he adds that portfolio managers often develop certain biases toward specific bonds. distressed specialist relieves portfolio managers. «especially when a bond suddenly trades at distressed levels, even if it hasn’t defaulted yet, it’s very valuable to get a fresh perspective. that’s a big relief for the portfolio managers.». aviva investors is the asset management arm of uk insurer aviva, which offers a full range of insurance services (auto, home, health, and life). the company currently manages over £233 billion in assets across public and private market solutions. better financial and esg information than before. aviva was one of the first insurance companies to set itself an ambitious co2 target as part of sustainability ambition. «our hy universe only shrinks by about 3 percent as a result. the problem used to be that relevant esg information was largely unavailable in our asset class.» the vast majority of issuers are private companies that often access the bond market to finance private equity transactions. «today, these issuers provide much more comprehensive information about their financial position and esg metrics than in the past,» explains ceyrac. smooth refinancing—also thanks to lower rates. according to ceyrac, high-yield bonds have delivered double-digit total returns in 2024 also because fears that many issuers might struggle to refinance maturing bonds due to high interest rates proved unfounded. «central bank rate cuts have made it possible to refinance maturing bonds without problems.» and the second effect: «lower rates support the economy, making it easier for companies to service their debt.». and returning to the earlier hot topic of germany’s fiscal package, ceyrac views it positively as well: «the package ensures that the recession in germany ends. the hy market performs well when the economy grows. that growth doesn’t even have to be strong—moderate is enough.».