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"The days of leveraged U.S. companies issuing BB bonds at 6.3% may be over," writes Sober Look,...

"The days of leveraged U.S. companies issuing BB bonds at 6.3% may be over," writes Sober Look, noting spreads on high yield bonds have widened 35 bps since the March lows. On top of that, HY bond funds saw their first outflows of the year this week, with mutual funds (home of the patient money) leading the ETFs - suggesting the losses could endure for awhile.
Comments (3)
  • I doubt it. AAA 30yr Paper is going at 3.125%. It would be hard to believe somebody would be risking $$$ money on Junk BB Paper for 4 or even 5%. Not to mention, rates are only low because of one simple reason. The Federal Reserve is printing money and holding down rates.

     

    It might be a while until High Yield Junk breaks over 10%, but it surely isn't going to break below 5%. Not unless the world is ending.
    13 Apr 2012, 01:52 PM Reply Like
  • The better quality bonds are getting called or bought back on tenders. These companies can borrow at lower rates. This is why the spread is widening. The funds owning them are getting their money back at a premium in most cases and this will be returned as capital gains to be distributed to holders.
    13 Apr 2012, 03:36 PM Reply Like
  • YThe spread widening is due to investors worry that the economy will slow down again this year, as it did in 2011, and this could weaken the credit profile of such companies. The stock market pulled back also. If you believe the economy is on a modest growth trajectory, then you will be rewarded holding HY bonds, though not as well as you were coming out of the Great Recession. That was an opportunity that comes around less than every decade.
    14 Apr 2012, 08:11 AM Reply Like
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