Paul Karpers, Portfolio Manager – Fixed Income_T. Rowe Price

Michael Della Vedova, Portfolio Manager/Analyst, Europe High Yield Bond Strategy, T. Rowe Price

Samy Muaddi, Portfolio Manager/Analyst, Emerging Market Financials, T. Rowe Price

The Future of High

Yield Investing

Agenda

High Yield After the Financial Crisis

Current US High Yield and Bank Loan Markets

• “Casting a Wider Net”

European High Yield

Emerging Markets Corporates

Outlook

High Yield Investing Has Been Very Rewarding Post 2008 Case Study – Univision

Peer Group: BLC, CBS, DISCA, DIS, EVC, LIN, NXST, SBGI, and VIAB.

Sources: FactSet, Barclays, and TRP Estimates/Analysis.

0.0x

2.5x

5.0x

7.5x

10.0x

12.5x

15.0x

Levera

ge o

r E

nte

rprise V

alu

e M

ultip

le

LBO Case Study – Univision and Broadcasting Peers

UVN Debt/EBITDA Avg Peer EV/EBITDA

Peer Group: BLC, CBS, DISCA, DIS, EVC, LIN, NXST, SBGI, VIAB.

Sources: FactSet, Barclays, and TRP Estimates/Analysis.

Leveraged Buyouts – A Transformation of Good Companies with Bad Balance Sheets

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

0.0x

2.5x

5.0x

7.5x

10.0x

12.5x

15.0x

Bond P

rice

Levera

ge o

r E

nte

rprise V

alu

e M

ultip

le

LBO Case Study – Univision and Broadcasting Peers

UVN Debt/EBITDA Avg Peer EV/EBITDA UVN Sr Notes Price

Fallen Angels Contribute to the Growth of High Yield, and Have Altered Its Composition

0

20

40

60

80

100

120

140

160

19

95

19

96

19

97

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98

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99

20

00

20

01

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02

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03

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04

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20

13

YT

D

US

D,

bill

ions

Fallen Angels – by par amount

0

20

40

60

80

100

120

140

160

Bond p

rice

Ford 7.45% of 2031

Sources: JPMorgan and Barclays

As of March 31, 2014

Current Market Performance – Lower Quality and Shorter Duration Outperforms

Sources: US Treasuries Bellwethers 10 Year Index, US Investment Grade Corporate Bonds, and Bank Loans are represented by S&P/LSTA Performing Loan Index. Emerging Markets Debt represented by JPMorgan EMBI Global Diversified Index. Emerging Markets High Yield Debt represented by the High Yield segment of the JPMorgan CEMBI Broad Diversified Index. High Yield represented by JPMorgan Global High Yield Index. Euro High Yield represented by BofA ML Euro HY Constrained ex Sub Financials index (returns in USD)Past performance cannot guarantee future results

2.8% 3.0%1.1%

2.9% 2.3% 3.7% 3.4%1.8%

18.6%

7.4%

4.3%

1.5% 1.4%0.6%

-4.4%

21.9%

-10%

-5%

0%

5%

10%

15%

20%

25%

Euro HighYield

High Yield Bank Loans InvestmentGrade

EM Corp.HY Debt

EmergingMtk. Debt

10-YearTreasuries

S&P 500

Total Return 1Q & 1-YearAs of March 31, 2014

Q1 1-Year

10-Year Treasuries

IG Corporate Bonds

High Yield

Emerging Mkt. DebtBank Loans

EM Corporate HY Debt

Euro High Yield

0

2

4

6

8

0 1 2 3 4 5 6 7 8 9 10

Yie

ld t

o W

ors

t (%

)

Option-Adjusted Duration (years)

Risk and Return for Fixed Income SectorsAs of March 31, 2014

The higher yields and lower duration profiles afforded by below investment-grade asset classes left high yield and

bank loans well positioned, as they outperformed most alternative fixed income sectors in this environment.

Leveraged Credit Outperforms Fixed Income Alternatives

During a year when the 10-Yr Treasury rose over 100bps, high yield and bank loans posted positive results

unlike most other fixed income sectors.

Source: Barclays and T. Rowe PricePast performance cannot guarantee future results.

-0.10

0.04 0.201.47

3.24 4.26

7.54

20.35

-202468

10121416182022

Perc

ent

Fixed Income Total Returns12 Months Ended March 31, 2014

1.86%

1.66%

3.04%

2.73%

1.50%

1.70%

1.90%

2.10%

2.30%

2.50%

2.70%

2.90%

3.10%

10 Treasury Rate MovementsJanuary 2013 Through March 2014

Dec. 31

Jan. 2

May 1

Mar. 31

Benefits of a Low Duration Profile Afforded by Bank Loans

Sources: JPMorgan, Barclays, and S&P/LSTA. Past performance cannot guarantee future results..

During historical periods of rising Treasury rates, leveraged loans performed well relative to other fixed income asset classes.

Time Periods When Treasury Yields Rose 100 bps or more

Total Returns – 1 Year

12 Months Ended

10-Year

Treasury Yield

Move

S&P/LSTA

Performing

Loan Index

Barclays U.S.

Aggregate Index

Barclays U.S.

Treasury Index

Barclays U.S.

10 Year

Treasury

Bellwethers

Index

Barclays U.S.

Corporate

Investment

Grade Index

JP Morgan

Global High

Yield Index

JP Morgan CEMBI

Broad Index

JP Morgan

Emerging Market

Bond Global Index

12/31/1999 +179 bps 3.58% -0.82% -2.56% -8.43% -1.96% 3.38% ---- 24.18%

5/31/2004 +130 bps 7.50% -0.44% -2.64% -5.23% -0.44% 13.23% 3.13% 3.14%

6/30/2006 +120 bps 6.15% -0.81% -1.68% -5.78% -2.22% 5.06% 0.96% 4.63%

12/31/2009 +162 bps 52.53% 5.93% -3.57% -9.76% 18.68% 58.90% 37.49% 28.18%

9/30/2013 +124 bps 5.07% -1.68% -2.09% -5.71% -1.58% 7.08% -0.12% -4.34%

Total Returns – (April 30, 2013 – August 31, 2013)

April 30, 2013 –

August 31, 2013+112 bps 0.50% -3.67% -3.37% -8.14% -4.92% -2.09% -6.31% -10.25%

Yields Today are Historically Low Prompting Our Managers to Expand the Traditional Opportunity Set

Mar 31, 2014 5.60%

0%

5%

10%

15%

20%

25%

Yie

ld t

o W

ors

t (%

)

JP Morgan Global High Yield Index

Average of 9.72%

Source: JPMorgan

“Casting a Wider Net” – European and Emerging Markets High Yield Issuers are More Mainstream Than You Might Think

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0

200

400

600

800

1000

1200

1400

1600

US

D,

bill

ions

US High Yield

European High Yield

Emerging Mkt. HY Debt

Sources: Credit Suisse, and BofA Merrill Lynch.

European High Yield and Emerging Markets High Yield Represent Growing Markets

with ScaleAs of March 31, 2014

European high yield is now significant in scale, depth and diversity.

3-5 Year German Government Bond

7-10 Year German Government Bond

European High Grade

US High Yield

Emerging Markets DebtEuropean Equities

Euro Pfandbriefe

European High YieldEM Corporate HY Debt

2

4

6

8

10

0 2 4 6 8 10 12 14 16

Ann

ualiz

ed R

etur

n (%

)

Annualized Standard Deviation (%)

Risk and Return for Fixed Income SectorsTen Years Ending March 31, 2014

Why Invest Now? Global Relative Value

Source: BofA/Merrill Lynch Indices: European Currency High Yield Constrained Excluding Subordinated Financials, US High Yield Master II, European High Grade Corporate, 3-5 Year German Government, 7-10 Year German Government and Euro Pfandbriefe, Emerging Markets High Yield Debt represented by the High Yield segment of the JPMorgan CEMBI Broad Diversified Index, and JPMorgan Emerging Markets Bond Index Global and MSCI Europe, all in Euro.

Emerging Markets Corporates

Source: JPM as of 3/31/2014

CEMBI Broad Diversified Index – High Yield Portion

Regional Breakdown

EM Corporate HY

Sector Diversification

EM Corporate HY

Financial 19.8%

TMT 19.1%

Metals & Mining 11.0%

Oil & Gas 10.0%

Consumer 9.6%

Industrial 8.8%

Real Estate 8.2%

Utilities 5.2% Other, 8.2%

Africa 5.4%

Asia 35.7%

Europe 20.7%

Latin America 32.4%

Middle East 5.7%

As of March 31, 2014

Lower leverage, higher credit quality

Sources: JPM, Credit Suisse, and BAML as of 3/31/2014.

Index Credit Quality Leverage

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5.0

5.5

Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14

Net

Levera

ge (

Net

Debt/LT

M

EB

ITD

A,

x

EM HY Leverage US HY Leverage

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

BB B CCC & Below NR

EM HY US HY

As of March 31, 2014

Default Migration & Recoveries

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5

10

15

20

25

30

35

40

45

EMEA LatAm Europe US Asia

EMEA LatAm Europe US Asia

2%

27%

12%

67%

29%

4%

59%

0%

10%

20%

30%

40%

50%

60%

70%

EM Corporate Defaults - S&P US HY 18 Yr Avg

BBB

BB

B

CCC/Below

EM vs. US HY: Contribution to Default by Rating At Issuance Senior Unsecured Recovery Rates by Region

Sources: JPM, S&P, and BAML.

As of March 31, 2014

EM Sr. Unsecured Recovery Rates Dev. Sr. Unsecured Recovery Rates

High Yield Outlook

From a fundamentals perspective, high yield and bank loans remain solid:

− Moderate US economic growth (GDP 2-3%) is ideal for below investment-grade companies.

− Many companies are generating healthy free cash flow, and a substantial portion of new issuance in the current cycle has been refinancing related, leading to lower debt costs and a significant reduction in near-term maturities.

− As a result, defaults (outside of TXU) are expected to remain low throughout 2014.

• Technicals for high yield and bank loans (strong demand with refinancing supply) have created an issuer-friendly environment impacting deal structures including an increase in cov-lite loans leading to less attractive valuations.

• European high yield remains attractive enjoying less volatility this year than its US counterparts with opportunity for more robust first time issuance given bank balance sheet deleveraging.

Emerging markets corporates offer diversification and attractive relative value but credit selection is paramount.

This information is provided for informational and educational purposes only and is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The specific securities identified and described do not represent all of the securities purchased, sold, or recommended for clients, and no assumptions should be made that the securities identified and discussed were or will be profitable. The views contained herein are as of May 2014 and may have changed since that time.

High-yield bonds carry a greater default risk than higher-rated bonds. Yield and share price will vary with interest rate changes but to a lesser extent than a portfolio of high-quality bonds. There is also a liquidity risk, the chance that the fund may not be able to buy or sell bonds at desired prices without causing substantial price swings.

Past performance cannot guarantee future results. All charts and tables shown are for illustrative purposes only.

2014-US-224