– Opportunity in high yield still exists given attractive spreads and lower interest rate sensitivity 

Fundamentals

• Corporate balance sheets remain healthy and supportive of the high yield market
• Companies continue to refinance qt lower rates and extend debt maturity profile
• Default rates remain around 1%, still well below historical averages (4%)

Technicals

• Retail fund flows have been negative for the year but have been positive recently
• Interest rate sensitivity has increased as spreads have tightened and rate volatility has increased
• Capital market activity has been robust due to strong demand and low interest rates
• While new issuance is rending more toward mower rated, refinancing nedds are still the primary use of proceeds

Valuations

• Spreads (+495 bps) are cheap to fundamentals and wider than comparable periods of below average defaults. High yield still provides attractive risk/return trade-off relative to other fixed assets
• We expect positive returns for the balance of 2013 but limited price appreciation; excess returns are likely to remain strong but nominal returns could be impacted by a rise in rates

Source : J.P.Morgan Asset Management