Seeking Alpha

Higher rates, not defaults biggest risk for high-yield says Fitch

  • The junk-bond market may be a bit frothy at the moment, but the real risk for high-yield paper is not a quick uptick in defaults, says Fitch, but instead that interest rates in general move higher. Interest rate volatility has been dormant thus far this year, but Fitch - looking back almost exactly one year - reminds about how quickly it can return.
  • As for credit: "Fitch recognizes the currently high issuance volumes and historically low yields in the leveraged finance space. However, in the view of Fitch’s Corporates team, we do not see a great deal of breakdown in credit discipline despite diminishing returns." The team also notes that while deal volume has picked up, it remains smaller than that of 2006-07 LBO boom, and the size, volume, and quality of today's transactions are "collectively less risky" than those of the previous cycle.
  • ETFs: HYG, JNK, HYLD, HYS, SJNK, PHB, SJB, HYHG, ANGL, HYLS, UJB, XOVR, THHY, SHYG, YPRO, QLTC, HYND, HYZD
Comments (1)
  • lbtaockham
    , contributor
    Comments (34) | Send Message
     
    Interesting story. But there are multiple factors affecting price trends for high yield bonds and perhaps the actual risk is simply that strong hands begin to sell high yield bonds - For Whatever Reason (it does not matter!). Then as a result of this selling (lack o demand/excess supply), technical support lines break, and more sellers/traders step in creating a significant correction or even a crash.

     

    While that could happen, we don't see evidence of it yet by looking at chart patterns in high yield bond funds, so we continue to hold. We are neither Bulls nor Bears (emotionally speaking), we simply believe tracking and understanding price trends using technical analysis is the most efficient and rational method for understanding what the market is doing and the most important means of managing risk and profits.

     

    For more info please see JunkBondRecycling.com.

     

    Thanks,
    Lesmore
    25 Apr, 02:14 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Tools
Find the right ETFs for your portfolio:
Seeking Alpha's new ETF Hub
ETF Investment Guide:
Table of Contents | One Page Summary
Read about different ETF Asset Classes:
ETF Selector

Next headline on your portfolio:

|