Opportunities in multi-asset, high-yield and bank-loan markets

Steve Wagner: Steve Wagner, I'm a Senior Portfolio Manager and Senior Analyst at Federated Hermes.

Interviewer: How can Investors pursue more yield in short duration bonds?

Steve Wagner: There're several ways that the investor can pursue a higher yield with lower duration. There's a number of multi-asset fixed income vehicles that tend to be very opportunistic and can limit duration when the market conditions warrant that approach and also take an approach to seek yield. We think that there's, the high yield market itself is, has fairly low duration at this point. In fact, the duration of the high yield market is around four years which is pretty low by historical standards. And also one of the areas to keep in mind is the broader bank loan market.

Steve Wagner: Now these are not securities per se, but bank loans can function pretty well in a rising rate environment and have very limited interest rate duration but offer a very competitive yield in an overall positive credit environment. So bottom line is there's plenty of ways to seek additional yield and also limiting duration but the investor always wants to keep in mind that in order to seek more yield, the investor is seeking more credit risk and which is fine when you're in a good credit environment but that's always important to keep in mind and that can result in a little bit more volatility. The hope is that the overall income that's generated by that portfolio will offset the volatility that you might incur in that kind of environment.

Views are as of Nov. 16, 2021 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Bond prices are sensitive to changes in interest rates and a rise in interest rates can cause a decline in their prices. Duration is a measure of a securitys price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter durations. High yield, lower rated securities generally entail greater market, credit/ default and liquidity risks, and may be more volatile than investment grade securities. In addition to the risks generally associated with debt instruments, such as credit, market, interest rate, liquidity and derivatives risks, bank loans are also subject to the risk that the value of the collateral securing a loan may decline, be insufficient to meet the obligations of the borrower or be difficult to liquidate. Federated Investment Management Company 21-40581 (12/21)