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Fridson ups warning on junk bonds

  • No longer "way overvalued," junk bonds are "way, way overvalued," says Martin Fridson, estimating fair value of the BAML high-yield index at 570 points over Treasurys vs. the current level of just 376 basis points.
  • He says high-yield has been in extremely overvalued territory for seven straight months, the longest streak in history. "Investors are accepting excessively small compensation for credit risk, so desperate are they to boost their yields. High-yield portfolio managers are not unaware of the inadequacy of spreads, but are willing to skate on thin ice on the assumption that the Fed is committed to rescuing them if anything goes wrong."
  • GMP Securities' Adrian Miller, meanwhile, is in agreement on overvaluation, but says - more or less - you've got to dance while the music's playing. A "repricing event," says Miller is not on the near-term radar.
  • ETFs: HYG, JNK, HYLD, HYS, SJNK, PHB, BSJF, SJB, BSJE, HYHG, BSJG, BSJI, ANGL, HYLS, UJB, BSJH, XOVR, THHY, SHYG, QLTC, BSJK, HYZD, HYND, BSJJ
Comments (3)
  • The_Hammer
    , contributor
    Comments (3803) | Send Message
     
    Ya gotta dance when the music is playing? this is turn and sprint in the opposite direction. where do they drum up these cash incinerators?
    21 May, 12:05 PM Reply Like
  • King Rat
    , contributor
    Comments (557) | Send Message
     
    From the link, the current streak is 4 months short of the longest that ended in Sept. 2008...

     

    This quote from the link was golden and reminds me of 1999.
    (“We don’t like valuations but have money coming in the door every day that needs to be put to work in the market”. Clearly this works, but the credit market is 100% about technicals right now.)

     

    The fear/greed balance is tipped overwhelmingly to the greed side. People trying to squeeze every last basis point of profit that they can regardless of the risks. I am fine with that, really. It was the same as well in 1994, which ended up being 5 1/2 years of sweet market growth.
    You don't need a 50% correction to re-balance fear and greed.

     

    HYG's value proposition is immediate yield. So many people throw themselves at the 5.8% payout when they could easily find stocks yielding 4% now, but with 8%DGR. In 5 years, you're already caught up. In 10 years your payout is 50% above HYG and your initial investment has doubled in value.
    21 May, 12:31 PM Reply Like
  • johnbartles
    , contributor
    Comments (4) | Send Message
     
    So I want to ask Miller when is the repricing event on the radar!!!!
    22 May, 04:24 PM Reply Like
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