In my last two videos I talked
about high yield bonds and preferred shares.
Not exact matches
When we talk
about bond market liquidity it's important to understand that there are lots of different «pools» out there such as
high yield bonds, munis, government
bonds, etc..
Gundlach predicts that both
high -
yield bonds and a portfolio of mortgage - backed securities could return
about 6 percent in 2013.
Total issuance of leveraged loans and
high yield bonds is down by nearly $ 140 billion this year compared to 2014, to
about $ 575 billion.
NEW YORK, Jan 18 - U.S. fund investors pulled $ 3.1 billion from
high -
yield «junk»
bonds during the latest week, Lipper data showed on Thursday, offering new warning signs
about risk appetite despite global markets» continuing triumph.
The SPDR Barclays
High Yield Bond fund gathered more than $ 1.1 billion, or
about half its total for the year, while the iShares iBoxx $
High Yield Corporate
Bond took in $ 603 million, pulling it out of negative territory for the full year.
There's reason to be concerned
about bond vigilantes, who are no longer under «lock and key» and are free to push
yields higher, Wall Street veteran Ed Yardeni told CNBC on Friday.
The $ 1.2 trillion market for U.S. junk
bonds yields about 6.6 percent, double what's offered by
higher - rated company debt, according to Bank of America Merrill Lynch index data.
Bloomberg reported Thursday that after Draghi's bold words
about protecting the euro last week, markets expect him to deliver some sort of drastic action to do so and to relieve pressure on
bond yields, which have climbed steadily
higher for Spain and Italy.
With market volatility hitting multi-decade lows, junk
bond yields also at record lows, the median price / revenue ratio of S&P 500 constituents at a record
high well - beyond 2000 levels, and the most strenuously overvalued, overbought, overbullish syndromes we define, I'm increasingly concerned
about the potential for an abrupt «air pocket» in the prices of risky assets that could attend even a modest upward shift in risk premiums.
Japanese shares hit a two - month closing
high on Tuesday with financials leading gains after U.S.
bond yields spiked to four - year
highs and as investors remained optimistic
about upcoming earnings.
When I was a junk
bond trader in the 1990's,
high yield money would be pulled from the market abruptly and quickly, usually
about a week before the stock market would undergo a big sell - off.
Yet we also see very strong inflows into junk
bond funds, based on the belief that these
high yields represent value rather than information
about default probabilities.
The BofA Merrill Lynch
high -
yield index is trading at roughly 600 basis points versus government
bonds, but if energy, metals and mining is excluded, it's
about 80 basis points less in terms of spread.
For borrowers, leveraged loans offer two significant advantages over
high -
yield bonds: They are cheaper, by
about 100 basis points on average at the moment.
Over the last four weeks,
about $ 11.4 billion have come out of
high -
yield corporate
bond funds that report weekly.
Recently my colleague wrote
about the correlation between VIX (spot and futures) and two credit sectors (
high -
yield and emerging market
bonds).
, but I think it's a mistake for risk averse or diversified investors to completely give up on
high quality
bonds because they're worried
about poor returns from low
yields.
For a number of years, concerns had been expressed
about the underpricing of risk in a range of financial instruments and the associated search for
yield as investors sought
higher returns in non-standard financial products as the
yield on more standard products such as government
bonds was deemed to be inadequate.
Putting aside the performance of
bonds during the bear market beginning in 1980 (both because the starting
yields on Treasuries were so
high but also because the bear market was relatively mild as the decline began from relatively low levels of valuation), what's interesting
about the above chart is how dependably
bonds protected a portfolio during equity bear markets.
This recent instability comes as
yields have jumped from July record lows and investors have become concerned
about the implications of
higher bond yields for equity valuations.
Learn
about More
High Yield Bond Investment Methods
This is because investors are worried
about rising interest rates, something that makes investment in utilities less attractive compared to
bonds and other
high yield stocks.
While the inflation impact from
higher oil prices and commodity prices in general, continue to pump up inflation expectation and push
bond yields higher, keep in mind that much of the recent spike in Yields is about as much about supply as it is about infl
yields higher, keep in mind that much of the recent spike in
Yields is about as much about supply as it is about infl
Yields is
about as much
about supply as it is
about inflation.
CORPORATE FINANCING NEWS
High -
yield corporate
bond issuance and trading have slowed considerably in the face of uncertainty
about Federal Reserve monetary policy, at a time when chairman Ben Bernanke is
about to hand over the reins to Janet Yellen,...
But I want to extend the conversation and talk
about another fixed income sector,
high yield bonds.
U.S. stocks rebounded in a volatile session, while the dollar cut losses and
bond yields rose to session
highs, as reports emerged
about Bannon's departure.
Bonds rated as BB or lower often form the «
High -
Yield» investment space that I wrote
about earlier.
For more information
about bonds, see our Investor Bulletins on municipal
bonds, corporate
bonds,
high -
yield corporate
bonds and interest rate risk.
While it is understandable that market participants are concerned
about interest rate risk in a rising rate environment, it is interesting to note that the
high yield bond sector stands out within the fixed income market with less rate sensitivity.
One of the biggest proponents of indexing, Rick Ferri, has a post up talking
about why for muni
bonds,
high yield bonds and equity value it may make sense to move beyond index funds.
You also get to use tax - inefficient investments like REITs and
high -
yield bonds without having to worry
about the tax implications.
The U.S. interest rate hike signals that the Fed is feeling optimistic
about the economy and tends to cause
bond yields on both sides of the border to move
higher, said Rob McLister, founder of RateSpy.com.
A second reason to be cautious
about high -
yield bonds is that they don't provide much stability in a portfolio when you're likely to need it most.
If you sell out of
high -
yield bonds now because you're worried
about defaults, you could miss out on potential gains if the economic growth improves or if rates stay the same.
Learn
about the major risks for the
bond market in 2016; interest rate increases,
high -
yield bond volatility and a flatter
yield curve may be issues.
We are even less enthusiastic
about high yield ETF investments in
high -
yield («junk») corporate
bonds.
Our view on short - term U.S. rates rise fits with our expectation for a moderate rise in long - term rates — even with the greater uncertainty
about the factors influencing
bond yields, including
high global savings.
(Real Estate Investment Trusts pay
high dividend
yields, which are taxed as income if held in an After - Tax account) What
about bonds?
Learn
about two
high -
yield bond ETFs that could be adversely affected if the trend of increasing corporate default rates continues.
So I still keep
about 50 % of my fixed income (
bonds, CDs, cash) in
bond funds, and a good chunk in
high -
yield savings accounts and reward checking accounts.
Fixed - income ETFs manage
about US$ 576 billion of global assets, ranging from Treasuries to
high -
yield corporate
bonds and emerging - market debt.
If you are thinking
about investing in
high -
yield bonds, you will also want to diversify your
bond investments among several different issuers to minimize the possible impact of any single issuer's default.
Although there has been a variety of writers and talkers like myself who have talked
about «canaries in the coal mines» —
high yield bonds, small caps, commodities, foreign / emerging stocks — the discussions are largely dismissed when U.S. large - caps turn upward.
But because worries
about global economic growth, inflation and the threat of central bank rate hikes are one catalyst for the climb of
bond yields, some analysts worry that the move
higher may prove sustained and inflict damage to the world's biggest economy.
I am admittedly only
about 70/30 with the 30 comprising of preferred shares (20 %) with some REITs (5 %) and
High Yield Bonds (5 %).
There's a lot of safe income available to retirees in
high -
yield bonds, but most never consider them because they know nothing
about them.
Investors have to be careful
about buying individual
high -
yield bonds.
It is
about buying short term money (by means of selling short term
bonds etc.) and selling that fund for a
higher yield.
If we think of common stock as a
bond then common stock has essentially paid a 12 % average annual coupon over the last 30 years while
high yield bonds have only paid
about a 8 % coupon.