The Role of High-Yield and Emerging Market Debt for a U.S. Investor

Abstract

What role should the extended sectors of the U.S. bond market—specifically high-yield bonds (HY) and emerging market debt (EMD)—play in a well-diversified portfolio of a U.S.-based institutional investor? Should these sectors be considered separate asset classes? At what point should the decision be made on whether to allocate assets to HY and EMD, and what are the important considerations that should guide the decision? An answer to these questions tests the relationships between these sectors and the major asset classes customarily held by U.S. institutional investors.