As people worry about growth and what the next chapter holds in the U.S. markets, many investors don't know where to put their money, however, the high-yield bond market might hold some pleasant surprises.
Without taking all their money out of stocks, investors should put some funds to work in the high-yield marketplace, according to Mark Howard, managing director and head of U.S. credit strategy at BNP Paribas.
High-yield total returns have beaten investment-grade credit, Treasurys and collateralized bonds in the past one-, five- and 10-year periods, according to BNP Paribas.
"We believe that for 2014, credit risk will be more compelling than interest rate risk and that high yield is the best way to generate good returns with reasonable risk," Howard said.
"If companies have a lot of maturities, as in 2008 or 2009, high yield can get very wobbly," he said.
Howard points out high-yield debt maturities have been very low and that trend should continue for the next few years. Expectations for high-yield debt maturities in 2014 stand at $50 billion, lower than the $350 billion expected in 2018, according to BNP Paribas.
Another reason Howard suggests parking money in the high-yield space is due to low default rates.
Howard said that in 2007 and 2008 there was a lot of debt but now there are very few companies that need to roll over debt. BNP's trailing 12-month speculative grade default forecast is expected to remain below 2.5 percent through 2014.
–By Christina Medici Scolaro