Shortening Duration and Dialing Down Credit Risk in High Yield

by: , Director, Product Management, New York Life Investments

Generating income is a key objective for many investors, and one that is increasingly difficult to achieve in today’s low interest-rate environment. Investors are more cautious about investing in lower-rated credit, given relatively tight credit spreads. We currently see an opportunity in higher-quality, short-duration high-yield bonds. We believe these bonds have the potential to generate attractive risk-adjusted returns and income, with less interest-rate sensitivity than investment-grade alternatives and less credit sensitivity than traditional high yield.

Why Now?

  • Short-duration bonds have proven resilient during periods of rising rates.
  • Higher-quality, short-duration high-yield bonds offer higher yields than investment-grade alternatives, with less interest-rate sensitivity.
  • High-yield credit fundamentals remain constructive. Since 2013, 56% of new issuance has been BB-rated, which is almost double that from before the credit crisis.
  • Higher-quality, short-duration bonds are an attractive complement to bank loans.


Before you invest

Before considering an investment in the Fund, you should understand that you could lose money.

The Fund is not a money market fund and does not attempt to maintain a stable NAV. The Fund’s net asset value per share will fluctuate. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. These risks may be greater for emerging markets.

Floating rate loans are generally considered to have speculative characteristics that involve default risk of principal and interest, collateral impairment, borrower industry concentration, and limited liquidity. Issuers of convertible securities may not be as financially strong as those issuing securities with higher credit ratings and are more vulnerable to changes in the economy.

The Fund may invest in derivatives, which may increase the volatility of the Fund’s NAV. Funds that invest in bonds are subject to interest-rate risk and can lose principal value when interest rates rise. Bonds are also subject to credit risk, in which the bond issuer may fail to pay interest and principal in a timely manner, or that negative perception of the issuer’s ability to make such payments may cause the price of that bond to decline.

S&P rates borrowers on a scale from AAA to D. AAA through BBB represent investment grade, while BB through D represent non-investment grade.

The information and opinions herein are for general information use only. The opinions reflect those of New York Life Investments. New York Life Investment Management LLC does not guarantee their accuracy or completeness, nor does New York Life Investment Management LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice.

For more information about MainStay Funds®, call 800-MAINSTAY (624-6782) for a prospectus or summary prospectus. Investors are asked to consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The prospectus or summary prospectus contains this and other information about the investment company. Please read the prospectus or summary prospectus carefully before investing.

New York Life Investments engages the services of MacKay Shields LLC, an affiliated, federally registered advisor, to subadvise several mutual funds. MainStay Investments® is a registered service mark and name under which New York Life Investment Management LLC does business. MainStay Investments, an indirect subsidiary of New York Life Insurance Company, New York, NY 10010, provides investment advisory products and services. The MainStay Funds® are managed by New York Life Investment Management LLC and distributed by NYLIFE Distributors LLC, 30 Hudson Street, Jersey City, NJ 07302, a wholly owned subsidiary of New York Life Insurance Company. NYLIFE Distributors LLC is a Member FINRA/SIPC.


Adam Schrier, CFA, FRM

Director, Product Management, New York Life Investments

Adam Schrier is a Director of Product Management at New York Life Investments, covering fixed income strategies with a focus on non-investment grade debt. Previously, he worked as a Product Manager for high yield and emerging market debt at Invesco in New York

Full Bio

Leave a Reply

Your e-mail address will not be published.