Hedge funds cautiously optimistic on high yield

A healthy spread

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Hedge funds are cautiously optimistic about the US high-yield bond markets. While spreads are attractive, the uncertainty in Europe, fickle investor flows and a reluctance among dealers to provide liquidity could be a source of downside risk in the near term, according to credit specialists.

High-yield bonds and loans are currently trading at unusually large multiples to the risk-free rate after a sharp sell-off in the summer caused yields to spike. The average spread between high-yield bonds and