Wed, Sep. 7, 10:20 AM
- That some investment-grade companies are issuing debt at negative yields seems crazy enough, but at least credits like Sanofi and Germany's Henkel can mostly be counted on the pay the money back.
- But how do investors justify paying to lend to junk-rated companies like Peugeot and HeidelbergCement, asks Lisa Abramowicz, noting their short-dated paper yields about zero, and is heading lower. Bank of America says the move to negative yields comes as fundamentals are actually deteriorating.
- "What, me worry," is the attitude at the ECB, whose PhDs are considering a further boost to its bond-buying program. BAML warns of a boomerang effect, where too-low yields spur a rapid rise in leverage, leading to downgrades, leading to paper ineligible for ECB purchase.
- In the meantime, the ECB program has spread globally, with investors turning to the next set of fixed-income assets with yields not requiring a microscope to see: Emerging market debt.
- ETFs: EMCB, HYEM, EMHY, PICB, IBND, CEMB
Nov. 23, 2015, 12:30 PM
- "Hazard ahead: The emerging market credit cycle has turned down," is the title of a recent JPMorgan report, arguing credit markets will tighten as the Fed boosts rates.
- A shoe not yet dropped, says the team, is that debt to GDP ratios are not decreasing.
- "Remember that a lot of the credit growth in emerging markets is no more than the flip side of easy money in developed markets," and as the Fed normalizes, this can reverse, though Europe and Japan keeping their feet on the gas pedal should mitigate the turn.
- The ratio of broad emerging market nonfinancial private credit to GDP hit 128% of GDP in Q1, up 51 percentage points from 2007. Exclude China, and the numbers are not nearly as gaudy, but still frothy, and the moves resemble those from that of developed markets in the years leading up to the global financial crisis.
- ETFs: EMB, PCY, TEI, EDF, ELD, EDD, EMLC, GHI, VWOB, EMD, EMCB, EDI, MSD, EMCD, EMHY, HYEM, SBW, LEMB, EMAG, CEMB, EBND, PFEM, EMSH, FEMB
Oct. 2, 2015, 4:32 AM
- Emerging markets are on track to suffer their first annual net outflow since 1988, the Institute of International Finance predicts.
- Foreign inflows are set to halve to $548B this year and outflows are expected to come in at $540B. With local outflows accelerating, net flows will turn negative.
- The flight from emerging markets "has been driven primarily by internal factors, basically reflecting a sustained slowdown in EM growth and amplified by rising uncertainty about China’s economy and policies," the IIF says.
- EMs have also been hit by the commodities rout, to which many are exposed. Weak currencies and political turmoil in countries such as Brazil and Turkey are increasing the risks.
- While those risks remain high, there is little incentive for investors to return to EMs.
- ETFs: EWZ, BRF, BRZU, BZF, EWZS, BRXX, BRAQ, BZQ, BRAZ, BRAF, UBR, DBBR, FBZ, TUR, EMB, PCY, TEI, EDF, ELD, ECON, EDD, EMLC, TKF, GHI, VWOB, CEW, EMD, EDI, MSD, EMHY, HYEM, EMIF, SBW, PXR, FEO, EMQQ, LEMB, EMAG, EMCG, EBND, AYT, PGD, PFEM, JEM, EMEY, EMSH, EMDI, BCHP, FEMB
Feb. 9, 2015, 3:49 PM
- "Simple broad credit allocations are to be avoided," says Invesco Fixed Income Chief Strategist Rob Waldner. "With volatility comes opportunity, but it is more important than ever for investors to do detailed research to avoid credit accidents that are likely to come with increasing frequency in coming quarters.”
- As for credit's troubles from the crash in oil , current market sentiment and pricing is pricing in a recovery in oil prices which isn't guaranteed to happen.
- Waldner is particularly cautious on high-yield and emerging market debt - both sovereign and corporate.
- ETFs: HYG, JNK, EMB, HYLD, PCY, ELD, EMLC, PHB, VWOB, SJB, IHY, ANGL, HYEM, EMHY, HYLS, PGHY, UJB, LEMB, HYXU, EMAG, XOVR, EBND, QLTC, IJNK, EMSH, FEMB
Jul. 1, 2014, 3:45 AM
- Emerging market bond sales have soared past analyst estimates for the first half of 2014, as investors flock to higher yields. $268B of bonds sold so far this year, compared to the $240B sold in the same period of 2013.
- Due to a dovish Fed, U.S. yields have fallen this year to 2.5% from end-2013 levels of 3%. As a result, increased demand for higher yield has investors trading emerging market bonds despite geo-political risks.
- ETFs: EMB, PCY, ELD, EMLC, EMCB, VWOB, EMCD, HYEM, EMHY, LEMB, EMAG, CEMB, EBND, PFEM, EMSH, SEMF, IEMF, LEMF
Apr. 8, 2014, 2:51 PM
- "There are segments of the high-yield market that do not compensate you for the risk you are taking by owning them," says BlackRock portfolio manager Michael Fredericks. Average spreads to Treasurys have fallen to just 352 basis points, the lowest since prior to the financial crisis.
- There's still value, insist some managers, you just have to know where to look. "The game has changed in the high-yield market and it has become more sophisticated than it was two or three years ago," says another fund manager. Barclays chief of credit strategy Brad Rogoff, for instance, is spotting value in the high-yield paper sold by mining and retail companies, as well as the dollar-denominated bonds sold by European companies. The so-called "yankees" are on average cheaper than the boarder market, he says.
- Another option is that of emerging market high-yield debt, with average yields of 7.6% more than 200 basis points higher than that of U.S. paper.
- Related ETFs: HYG, JNK, HYLD, HYS, SJNK, PHB, BSJF, SJB, BSJE, BSJG, HYHG, IHY, EMHY, HYEM, BSJI, HYXU, ANGL, PGHY, HYLS, XOVR, UJB, BSJH, THHY, IJNK, SHYG, QLTC, BSJK, HYZD, HYND, BSJJ
Mar. 11, 2014, 1:37 PM
- High-yield investors should take little comfort from a low default rate (with most forecasting for that to continue), says Martin Fridson, reminding the default rate in 2007 was 0.975%, but junk suffered a 5.6% price drop that year.
- The commonly held belief that high-yield total return equals yield minus default loss is "essentially irrelevant over a one-year horizon" in that it assumes the bonds which default in any given year began the year at par. In truth, the vast majority of any year's defaults began the year as distressed paper with spreads to Treasurys of 1K basis points or more.
- "Investors are ill-served by overly simplistic analysis implying that mid-double-digit returns are a sure thing as long as the default rate remains below average. The high-yield market has proven that it is quite capable of generating substantial price declines even in the face of extremely low default rates and declining Treasury yields."
- Yesterday: Junk-bond default rate slides to just 1.6%.
- ETFs: HYG, JNK, HYLD, HYS, SJNK, PHB, BSJF, SJB, BSJE, BSJG, HYHG, HYEM, IHY, EMHY, BSJI, HYXU, ANGL, PGHY, BSJH, HYLS, XOVR, THHY, UJB, QLTC, SHYG, BSJK, HYZD, BSJJ, HYND
Mar. 7, 2014, 2:31 AM
- As expected, China's corporate-bond market has suffered its first ever domestic default, with Shanghai Chaori Solar Energy Science & Technology failing to fully pay 89.8M yuan ($14.7M) in interest that was due today.
- Until now, China had bailed out distressed companies.
- Moody's believes that the default will be a "wake-up call" that will help the growth of China's bond market. It will "signal regulators' higher tolerance for corporate bond defaults amid financial market reforms, which is in line with the current central administration's shift to adopt more market-oriented policies," Moody’s says.
- Meanwhile, the Shanghai government has reportedly given authorization for a city-owned investment company to purchase non-performing loans from local banks. The approval follows similar approval by other municipalities and indicates how Shanghai is preparing for an expected rise in bad debt.
- The markets reacted calmly to Chaori's default and the Shanghai Composite closed -0.1%.
- ETFs: FXI, PGJ, GXC, FXP, YINN, CYB, CNY, DSUM, YANG, MCHI, XPP, YAO, FXCH, CHXF, YXI, HYEM, EMHY, FCA, TCHI, CHLC
Feb. 12, 2014, 4:50 PM
- "The default rate is non-existent," he says, agreeing that fundamentals in high-yield look good. "Instead of a default cycle, we've had a refinance cycle." The issue, however, is valuation. At the end of 2013, the 30-year Treasury yielded about 4%, while BB corporates "unbelievably" yielded just 4.5% - a "remarkably low incremental yield."
- His feelings about overvaluation extend to the investment grade corporate market (LQD) as well.
- Most curious to Gundlach is how universally the long bond is hated at 4%, while junk yielding 4.5% gets so much love.
- Besides Treasurys, Gundlach sees value in emerging market bonds. The risk is in the currency, but this can be eliminated by buying dollar-denominated paper.
- High yield ETFs: HYG, JNK, HYLD, HYS, SJNK, PHB, BSJF, SJB, BSJE, HYHG, BSJG, BSJI, ANGL, BSJH, HYLS, XOVR, THHY, UJB, QLTC, SHYG, BSJK, HYZD, BSJJ, HYND
- Investment grade ETFs: LQD, VCSH, VCIT, CORP, VCLT, CSJ, CIU, CFT, SCPB, LWC, CLY, ITR, QLTA, IGHG, PFIG, SLQD, IGS, CBND, IGU, QLTB
- EM bond ETFs: EMB, PCY, ELD, EMLC, EMCB, VWOB, EMCD, ILB, HYEM, EMHY, LEMB, ITIP, EMAG, EBND, GTIP, PFEM, EMSH, SEMF, IEMF, LEMF
Nov. 21, 2013, 9:12 AM
- Emerging market bond ETF investors worried about duration risk will have their first short-duration fund to choose from starting today with the launch of ProShares' Short-Term USD Emerging Markets Bond ETF (EMSH). The fund has an expense ratio of 0.5%.
- The underlying index only selects paper with a fixed rate and maturity of 0-5 years, with a weighted average yield-to-maturity of three years or less. Sovereign, and corporate - both investment and speculative grade - will be included.
- As comparison, the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB) has a 7-year effective duration.
- Corporate EM bond ETFs: EMCB, EMCD, HYEM, EMHY
- Government EM bond ETFs: EMB, PCY, ELD, EMLC, ILB, LEMB, ITIP, EBND, GTIP, PFEM
Nov. 13, 2013, 11:33 AM
- Market Vectors files paperwork for the Emerging Markets Aggregate Bond ETF EMAG, with an after-fee-waiver annual expense ratio of 0.49%.
- The fund will hold both sovereign and corporate, and both investment grade and high-yield paper from a large number of emerging market countries. At the end of Q3, the tracked index held about 1,800 bonds from a total of 694 issuers.
- Market Vectors' Emerging Markets Local Currency Bond ETF (EMLC) has just over $1B in AUM.
- Related ETFs: EMB, PCY, ELD, EMLC, ILB, LEMB, ITIP, EBND, GTIP, PFEM, EMCB, EMCD, HYEM, EMHY
Jun. 12, 2013, 9:07 AM
Here's a contrarian play for June: An ETF combining junk bonds and emerging markets. The iShares EM High Yield Bond Fund (EMHY) is off 9% over the past month, eliminating all gains (not including dividends) since inception 14 months ago. Interestingly, the fund - which has garnered an impressive $248.5M AUM - has seen no outflows since the start of June. PCY - which holds EM sovereign debt - has actually performed worse than the EM junk bond fund during the downturn.| Jun. 12, 2013, 9:07 AM
Nov. 1, 2012, 3:34 PM
Yield-starved investors are moving assets into emerging-market corporate debt ETFs, and the industry responds by upping the number of products offered to 10 from just 3 at the end of 2011. There's still plenty of room for growth - in total, such ETFs (a selection here) have about $1B AUM with the size of the EM corporate debt market at $776B. The largest U.S. corporate debt ETF, LQD alone has about $25B AUM.| Nov. 1, 2012, 3:34 PM
Jun. 7, 2012, 2:36 PMWhen life deals you lemons ... banks (particularly European ones) cutting back lending activity in Asia is leading to a ramp in the development of the corporate bond market there. Companies (ex-Japan) issued $398B in bonds last year, up 29% Y/Y as syndicated bank loans dove 44%. | Jun. 7, 2012, 2:36 PM
May 10, 2012, 3:18 PM
A new asset class - emerging market corporate debt (as opposed to sovereign) - is in the process of working its way into portfolios. "If we own corporate bonds and Treasury(s) in our fixed asset allocations here ... why not do the same abroad," says Josh Brown. Among the ETF offerings launched this year: EMCB, EMHY, HYEM, CEMB.| May 10, 2012, 3:18 PM | 1 Comment
Apr. 5, 2012, 12:32 PM
A new offering of ETFs offers high yield investors greater international - both developed and emerging - exposure. EMHY is designed to track the Morningstar Emerging High Yield Bond Index, the HYXU sticks to developed countries, and the GHYG adds international (developed) exposure to the popular HYG. (PR)| Apr. 5, 2012, 12:32 PM | 1 Comment