The area of the bond market that’s the opposite of Ryanair

When Ryanair started selling tickets for as little as £1 back in 2009, many people couldn’t work out how the airline could afford to fly people to Europe for less than the price of a cup of tea.  

But for anyone who had actually taken a Ryanair flight, the answer was obvious: it couldn’t, with the advertised price excluding a multitude of hidden charges that often cost many times that of a standard ticket. Even an inflight cup of tea will set you back nearly £4. 

While consumers initially found this business model jarring, most now seem to accept than any sort of major purchase will likely come with numerous extra costs that weren’t included in the advertised price. 

Therefore, we find it quite refreshing to work in an asset class that advertises one yield figure, then invariably pays another that is significantly higher.  

I am talking about high-yield bonds and the impact of ‘early calls’. 

Early calls 

Unlike government and investment grade corporate debt, high-yield bonds generally have a provision to be redeemed early by the company – known as being ‘called’.  

This redemption takes place at a price of 100c (‘par’) or above and tends to be executed between three and five years ahead of maturity.  

The potential for these early calls is the reason why there is a convention to discuss ‘yield to worst’ – effectively the lowest possible yield a bond can deliver.

When bonds are trading below par, the yield to worst will be the yield to its final maturity. Yet any earlier redemption by the company would effectively cause the price of the bond to rise to that 100c level sooner than the final maturity date, increasing the yield. 

Why early calls are so important today 

The reason this is so interesting today is that much of the high yield bond market is trading below 100c¹, which is an unusual scenario, especially away from times of significant stress. 

ICE BofA Merrill Lynch Global High Yield Constrained Index price splits (% of face value)

Source: ICE BofA indices as at 31 October 2025

You may be wondering why a company would choose to redeem a bond early: isn’t the reason it is trading below 100 because it would cost the company more to issue new debt today? In other words, it is paying a lower rate of interest on its outstanding bond than what the market would offer on a new placing.  

There are three main reasons why companies call bonds early, even if the cost of their replacement financing is higher.  

1. Most high-yield companies have signed deals with corporate banks for day-to-day facilities (think working capital, foreign exchange facilities, payroll and so on) that prevent short-term financing needs endangering their lending. The usual format is a ‘current ratio clause’ which effectively prevents the borrower’s current liabilities (those due in the next 12 months) exceeding current assets. Once any outstanding bond moves within 12 months of redemption, these facilities are under threat.  

2. Ratings agencies conduct checks on current liabilities against a similar set of criteria and will flag any bond with less than 12 months to maturity as a potential liquidity risk. This could eventually lead them to downgrade the issuer’s bonds, pushing up borrowing costs.  

3. The managers of high-yield companies are cognisant of the realities of this market. They know access isn’t guaranteed, it can be volatile and it would be unwise to risk the future of their company on the execution of a deal that is inherently uncertain. Calling bonds early isn’t just a requirement of the banks and rating agencies, it also represents sensible corporate management. 

The extra income from early calls 

So how much extra income can high-yield investors expect to receive from early calls today? 

There are two key elements here – first, the cash price; and second the difference between yields and spreads to worst (the difference between a bond's yield-to-worst and the yield of a Treasury of the same maturity) on one side and the yields and spreads to a potential early call on the other.  

Let’s look at these for the ICE BofA 1-5yr Global Non-Financial High Yield Constrained index, which should be representative of the shorter-dated bonds we focus on. 

Source: BofA indices, Artemis; 20 November 2025 

This of course requires a degree of simplification – but does give some indication of the significance to spreads (and also to yields) of incorporating the reality of early calls, rather than the theoretical – but unrealistic – spreads and yields to worst. 

What does this look like at the fund level? 

For a real-world example, let’s look at our Artemis Funds (Lux) – Short-Dated Global High Yield Bond Fund. In the first half of 2025, 8.4% of the fund was called early at an average of 2.1 years ahead of maturity, with an average starting price of 98.8c². 

On an annualised basis, having close to 20% of the portfolio benefit from this tailwind can provide a significant boost to returns. More importantly for anyone relying on their investments for income, it can help make the difference between a comfortable standing of living and one where you can treat yourself to a couple of little extra luxuries. Like a Ryanair cup of tea.