The continent has struggled to develop high -
yield debt markets for growth companies below investment grade, and what it did achieve is collapsing in 2016.
The $ 1.2 trillion high -
yield debt market could face a double whammy as spreads tighten and investors use the corporate earnings season starting in the second week of October as an excuse to take even more profits.
Global ratings agency Moody's has blamed risky projects and volatile market conditions for the failure of two Australian mining companies soon after they entered the high
yield debt market.
Not exact matches
Many people have bought into this space because it's one of the only places to get decent
yield, but she points out that a number of companies only offer corporate
debt because of
market demand.
In the short - term, however, this increased leverage may actually be bullish for junk bonds, corporate bonds, emerging
market debt and mortgage - backed securities as it brings higher prices and lower
yields, he said.
The sell off in the
market for high
yield debt, or junk bonds, is now hitting a type of structured bond that is similar to the the type that blew up in the financial crisis.
Although there may not be a bond bubble, with investors starved for
yield, Gundlach predicts a potential bubble could form in credit risk as investors increase their leverage on riskier
debt securities like junk bonds and emerging
market debt.
That might lower the amount of
debt entering the high
yield market.
Energy companies have made up a good portion of
debt issued in the high
yield market over the past few years.
It puts 25 % into foreign stocks, 25 % into U.S. Treasuries, and 10 % each into commodities, emerging -
market currency, bank loans, high -
yield bonds, and 5 % each into TIPS and local - currency emerging -
market debt.
«Shorter duration hedge fund assets have grown at a rapid pace even as
market liquidity has deteriorated, particularly in the high
yield and distressed
debt markets.
Yields in the $ 14 trillion
market for U.S. government
debt touched record lows in 2016, driven by years of aggressive central bank intervention in the wake of the 2008 - 2009 financial crisis to keep interest rates low to stimulate the economy.
yields will hit the highs on close end of the day... equity
markets setting up to be slammed tomorrow maybe but today they have run over weak shorts in the face of rates... the federal reserve see's this and again will wonder if they are behind on hikes, strong data, major expansion in credit, lack of wage growth rising bond
yields and ballooning
debt... rates will go much higher and equities will have revelations as to what that means for valuations
They could then reinvest that cash into higher
yielding assets such as, say, emerging
market debt.
Authors Linda Goldberg and Deborah Leonard examine how the news contained in economic announcements — the unanticipated information that can move
markets — influences sovereign
debt yields.
Yields on U.S. government bonds are already some of the highest in the sovereign
debt markets and are attractive to non-U.S. buyers on an absolute and relative basis.
These include emerging
market bonds, high
yield debt, corporate bonds and mortgage bonds.
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.
Our team of credit professionals deliver sales and trading capabilities across a wide range of fixed income asset classes including high
yield, distressed and investment grade bonds, convertible bonds, public and private corporate securities, leveraged loans and emerging
market debt.
But even as the
market adjusts to the next level of
yields, there will be more government
debt for the Treasury
market to deal with.
The potential counter weights that could cap the 10 - year
yield would be a negative stock
market reaction that drives investors to bonds; lower interest rates outside the U.S. that make the U.S.
debt relatively more attractive, and good demand for longer - dated securities from insurers and others.
Emerging -
market companies have piled on
debt in recent years, allured by low interest rates from
yield - starved investors.
Against this environment, our strategists remain bullish on equities and continue to favor emerging
market currencies and, in the fixed income space, prefer local
markets over external
debt and maintain their higher -
yielding yet better - quality bias.
Although the bond
market is also volatile, lower - quality
debt securities, including leveraged loans, generally offer higher
yields compared with investment - grade securities, but also involve greater risk of default or price changes.
Our Global
Market Strategies segment, established in 1999 with our first high
yield fund, advises a group of 46 active funds that pursue investment opportunities across various types of credit, equities and alternative instruments, including bank loans, high
yield debt, structured credit products, distressed
debt, corporate mezzanine, energy mezzanine opportunities and long / short high - grade and high -
yield credit instruments, emerging
markets equities, and (with regards to certain macroeconomic strategies) currencies, commodities and interest rate products and their derivatives.
Prior to joining Cerberus, Mr. McLeod managed the leveraged finance origination and execution activities at CIBC World
Markets from 1998 to 2006, where he originated, structured and executed transactions involving high
yield debt securities, leveraged loans, privately placed mezzanine securities and merchant banking investments.
I still think there will be a flight to safety in sovereign bonds when stocks have a bear
market but other areas such as high
yield and corporate
debt could run into some problems.
As
yields on preferred shares rose over the past year and a half, many corporate issuers turned to
debt markets as a cheaper source of financing for their funding needs.
As you can see in the chart below, one of the portfolio's strengths is the freedom it has to go beyond traditional sources of income and pursue nontraditional income sources — such as ETF exposure to bank loans, preferred stock, and emerging
market debt — in order to seek
yield.
Oil prices have fallen more than 15 percent since March 4 to a six - year low of $ 42.3, wiping out $ 7 billion of
market value of high -
yield debt issued by energy companies.
Global monetary policy remains broadly accommodative — and in some areas more and more so — propelling equity
markets ever higher and leaving a record amount of sovereign
debt around the world (almost US$ 12 trillion by midyear)
yielding at or below zero (source: Fitch Ratings, as of 6/29/2016).
A forward P / E ratio of 16.5 times earnings isn't anything to write home about, even if the stock trades on a forward free cash flow - to - enterprise value (
market cap plus net
debt)
yield of 5.2 %.
Thus, even as longer treasury
yields quit rising, the
market rate on corporate
debt starts soaring, often quite dramatically.
Certainly, the extreme present bearishness on the treasury
debt market is helping to support prices where they are but once that is worked off we think the downtrend in prices (meaning up - trend in
yield) continues.
If you'll recall, the root cause of the collapse a decade ago was the
market realization that all this
debt that was being sold to investors as high
yield and low risk was suddenly reevaluated.
While I didn't have an explicit forecast on European sovereign
debt, I admit that I completely missed the possibility that by the end of 2015, 40 percent of the European sovereign
debt market would be trading at a negative
yield.
The continuing low level of government bond
yields has supported the search for
yield that has been evident over the past couple of years, with the spread between
yields on US government
debt and
yields on both corporate and emerging
market debt remaining around historical lows over the past three months (Box B).
Investor demand for emerging
market (EM)
debt has been strong lately, as the near - term risk of trade wars has faded and income seekers have flocked to the asset class» higher
yields.
With interest rates on low - risk investments falling to low levels in many countries, investors have sought to maintain
yields by moving into higher - risk assets such as corporate
debt and emerging
market debt.
For years, friendly
debt markets have allowed issuers to push the «maturity wall» — where tons of bonds come due simultaneously across the high -
yield market.
Tags: 10 - year
yield, ETFs, EU, Fed, President Macron, trade, U.S.
yield curves Posted in
Debt Market, Fed 16 Comments»
The
market «prices in» the tax - deductible feature on municipal coupon payments, so when you aren't a beneficiary of said tax treatment, then I (at least) believe it makes more sense to get tax - free income on higher
yield corporate
debt (of the same credit profile).
Yet by setting
yields so low and bond prices so high,
markets are sending a clear signal that they want more, not less, government
debt.
Tags: average hourly earnings, Bunge Grain, cyclical, Fed, FOMC, Lael Brainard, nonfarm payrolls, tariffs, U.S. Dollar, U.S.
yield curves Posted in Currency,
Debt Market, Fed, United States 14 Comments»
We have seen an expansion of global high -
yield debt issuance, particularly in European and emerging
markets during this cycle (as shown in Exhibit 1).
The BAA spread refers to the
yield on corporate bonds above the rate on comparable maturity Treasury
debt, and is a
market - based estimate of the amount of fear in the bond
market.
With corporate
debt markets priced for another Great Depression, High
Yield Bonds are in a unique position to outperform equities given recent runups off the lows while providing a high yield income stream for years to
Yield Bonds are in a unique position to outperform equities given recent runups off the lows while providing a high
yield income stream for years to
yield income stream for years to come.
It's also interesting to examine the changing significance and dynamics of the European bond
market in general, which has almost doubled in size since 2005 to more than $ 10 trillion today, including government, investment - grade corporate
debt and high
yield.
Central bank intervention in global bond
markets has «crowded out» many traditional fixed income investors, driving them to seek
yield and income from non-traditional and riskier asset classes such as high
yield, emerging
markets debt, leveraged loans and private credit.
Tags: BOC, Fed, financial repression, Janet Yellen, Loonie, pension funds, RBA,
yield curve Posted in BCB, Currency,
Debt Market, Fed, RBA 10 Comments»