Mon, Apr. 20, 9:21 AM
- Nobody really talks about it much, says Jeff Gundlach, but the junk-bond market's entire life has been spent in a time of secularly declining interest rates. Exactly how with these assets react once that move ends?
- There's no need to sell today, says Gundlach, as the crisis he envisions is at least a couple of years away, when increasing interest rates collide with a wave of maturing paper needing to be refinanced. For now, stick with the "carry trade" of owning high-yield bonds.
- ETFs: HYG, JNK, HYLD, HYS, SJNK, SJB, BSJF, ANGL, BSJG, HYHG, BSJI, HYLS, UJB, WYDE, XOVR, BSJH, HYZD, THHY, QLTC, SHYG, BSJJ, HYND, HYGH, BSJK, TYTE, BSJM, BSJL
Dec. 9, 2014, 3:51 PM
- “Plunging oil prices have driven nearly one out of four high-yield energy issues into distressed territory,” writes Marty Fridson, not saying whether he's a buyer here, or not. “The implied default rate for the next 12 months fits the trajectory we would likely see leading up to an industry-specific oil patch recession in 2016.”
- Michael Aneiro notes the energy sector constitutes about 17% of the broad high-yield market, and both the SPDR Barclays High-Yield ETF (JNK -0.3%) and the iShares version (HYG -0.2%) are lower again on the session (even as oil has rebounded into the green).
- In June - when the BAML high-yield index yield hit an all-time low of 4.86% - the energy sector yielded about the same at 4.88%. Today, with the BAML index at 6.48%, the energy portion yield has soared to 8.9%, a full 710 basis points over comparable Treasurys.
- Previously: Oaktree pounces as energy tumbles (Dec. 9, 2014)
- ETFs: HYG, JNK, HYLD, HYS, SJNK, SJB, BSJF, HYHG, BSJE, BSJG, ANGL, BSJI, HYLS, UJB, HYZD, XOVR, THHY, BSJH, QLTC, SHYG, BSJJ, HYGH, HYND, BSJK, BSJL, BSJM
Dec. 2, 2014, 5:09 AM
- With a $17B issuance from Medtronic (NYSE:MDT), U.S. corporate bond sales broke an annual record yesterday, pushing offerings for 2014 past the $1.5T mark.
- The surge in sales has been boosted by record-low borrowing costs, prompting companies to lock in on the low rates.
- ETFs: HYG, JNK, LQD, HYLD, HYS, VCSH, SJNK, VCIT, VCLT, CORP, CSJ, SJB, BSJF, CIU, HYHG, BSJE, BSJG, CRED, ANGL, LWC, BSJI, HYLS, SCPB, CLY, WYDE, BSCF, BSCE, ITR, BSCH, UJB, HYZD, XOVR, IGHG, QLTA, THHY, BSCG, BSJH, BSCI, QLTC, SHYG, BSJJ, HYGH, HYND, TYTE, BSJK, IBCE, COBO, IGS, SLQD, BSCK, CBND, FCOR, LQDH, IBCB, LDRI, QLTB, BSCJ, IBCC, BSCM, IBDH, IBDF, BSCL, IBDD, IGU, IBDC, BSCN, IBDA, IBDB, IBCD, BSCO, SKOR, BSJL, BSJM
Oct. 16, 2014, 3:32 PM
- Warning about "extreme overvaluation" for some time in high-yield, Martin Fridson says the market is at long last back to being at least "moderately undervalued."
- The average spread per the BAML index between junk and Treasurys has climbed to 508 basis points from a low of about 340 bps this summer, and Fridson's model of the option-adjusted spread pegs fair value at 442 bps. The 66 basis points between that and 508 represents about one-half of a standard deviation - hence the "moderately."
- UBS is a buyer as well: "We believe there has been shift in the relative attractiveness between the equity risk premium and the more defensive credit risk premium, and we add to overweight position in U.S. high yield credit."
- Previously: BlackRock buying the dip in junk bonds
- ETFs: HYG, JNK, HYLD, HYS, SJNK, SJB, BSJF, BSJE, BSJG, HYHG, ANGL, BSJI, HYLS, WYDE, UJB, XOVR, THHY, BSJH, HYZD, QLTC, SHYG, HYGH, TYTE, BSJJ, BSJK, HYND, BSJL, BSJM
Aug. 15, 2014, 8:59 AM
- U.S. high-yield bond funds booked $680M of inflows in the week ended August 13, according to Lipper, their first weekly inflow in a month. A record $7.1B was pulled the prior week, and for the month ended August 6, a total of $12.6B was withdrawn.
- “When we saw these big outflows we were looking to buy stuff,” says one fund manager, though he notes the big withdrawal numbers did little damage to prices.
- Alongside the outflows has been a slowdown in borrowing, with leveraged-loan issuance of $9.7B and junk-bond sales of $2.9B this month, the lowest for the period since 201.
- ETFs: HYG, JNK, HYLD, HYS, SJNK, BSJF, SJB, BSJE, BSJG, HYHG, BSJI, ANGL, HYLS, UJB, BSJH, XOVR, THHY, WYDE, SHYG, QLTC, BSJK, HYGH, BSJJ, HYND, HYZD, TYTE
Aug. 7, 2014, 1:17 PM
- The ProShares CDS North American HY Credit ETF (BATS:TYTE) and The ProShares Short CDS North American HY Credit ETF (BATS:WYDE) are the first U.S. ETFs to offer exposure to credit spreads exclusively.
- By investing in index-based credit default swaps (CDS), these funds gain pure exposure to changes in credit spreads.
- “TYTE and WYDE have a variety of uses in sophisticated portfolios,” said Michael L. Sapir, Chairman and CEO of ProShare Advisors LLC. “For instance, WYDE can be used to hedge against the credit risk in high yield bonds. With TYTE, investors can obtain exposure to the high yield bond market without the risk associated with rising interest rates.”
- ETFs that offer exposure to U.S. high yield corporate bonds: HYG, JNK, HYLD, HYS, SJNK, SJB, ANGL, HYLS, UJB, XOVR, QLTC, SHYG, HYND, HYZD
Aug. 5, 2014, 12:55 PM
- The high-yield market lost about 2% in July, with the average spread to Treasurys rising to 424 basis points from 353. Fridson's estimate of fair value is 467, meaning the overvaluation level has shrunk to just 43 bps from nearly 200 in late June.
- Also of note, says Fridson, is a "substantial improvement" in credit availability which is a key part of his fair value calculation. The Fed Survey of Senior Loan Officers shows a net easing of credit standards read of 21.3%, nearly double that of the previous print - "the most favorable credit environment since September 2011," says Fridson.
- ETFs: HYG, JNK, HYLD, HYS, SJNK, BSJF, SJB, BSJE, BSJG, HYHG, BSJI, ANGL, HYLS, UJB, BSJH, XOVR, THHY, QLTC, SHYG, BSJK, HYGH, BSJJ, HYND, HYZD
Jul. 15, 2014, 10:46 AM
- A combined $620M was pulled from the two largest high-yield ETFs (HYG, JNK) last week, making them the least popular in the fixed-income ETF universe during that period, according to data put together by Bloomberg.
- The move comes with yields on the BAML U.S. Index right around their record lows, and strategists suggest investors are cashing in some chips after a near straight-line rally over the past few months, if not years. While these ETFs are aimed at individual investors, they're increasingly being used by institutions to adjust exposure in a relatively low liquidity sector.
- ETFs: HYG, JNK, HYLD, HYS, SJNK, BSJF, SJB, BSJE, HYHG, BSJG, ANGL, BSJI, HYLS, UJB, BSJH, XOVR, THHY, QLTC, SHYG, BSJK, HYGH, HYND, HYZD, BSJJ
Jul. 8, 2014, 11:25 AM
- It definitely feels like investors are getting overexuberant, and you can stay in overexuberant conditions for a while,” says Key Private Bank's Fred Senft. "But when it turns it will turn quickly and it will turn very ugly.”
- First half high-yield corporate bond issuance of $331B blew away the already perky levels of the last three years (2013's was about $250B) as yields on the BAML Global High Yield Index plumb new record lows. Even Japan's notoriously risk-averse Government Pension Investment Fund is considering scrapping its practice of only buying investment-grade paper and venturing into junk.
- Senft's day of reckoning could be coming near, with junk-rated borrowers having $737B in debt needing to be refinanced or paid off in the next five years. "It's about as extreme as it gets," says Marty Fridson, who estimates spreads are about 200 basis points too tight.
- ETFs: HYG, JNK, HYLD, HYS, SJNK, BSJF, SJB, BSJE, HYHG, BSJG, ANGL, BSJI, HYLS, UJB, BSJH, XOVR, THHY, QLTC, SHYG, BSJK, HYND, HYGH, HYZD, BSJJ
Jun. 16, 2014, 1:29 PM
- High-yield debt funds raised their allocations to stocks to 3.2% at the end of March, up from 3.1% at the end of 2013 and just 2.1% one year earlier.
- JPMorgan suggests investors do more of the same: “We see credit as relatively over-owned and valued versus other risk assets,” says JPMorgan. “Investors are beginning to worry about how the eventual exit will fare in a world of reduced market making by banks.”
- The move comes as junk bond yields scrape record absolute lows, and on a relative basis, junk buyers are earning 346 basis points more than benchmark rates, the lowest since 2007 and 241 basis points less than the two-decade average. “We prefer to take more risk in equities and we now cut the size of our U.S. high-yield spread trade by one-third," says JPMorgan.
- ETFs: HYG, JNK, HYLD, HYS, SJNK, BSJF, SJB, BSJE, HYHG, BSJG, BSJI, ANGL, HYLS, UJB, XOVR, BSJH, THHY, SHYG, QLTC, BSJK, HYZD, HYND, HYGH, BSJJ
Jun. 10, 2014, 11:46 AM
- It was May 2013 when the yield on BAML's benchmark index slipped below 5% for the first time ever, after four months earlier falling below 6% for the first time ever. What happened next was a bear market in fixed income which sent yields on all instruments sharply higher.
- This year's big bull run for fixed-income has brought 5% back into play, with the yield on the BAML index sliding to 5.002% this morning. Junk bonds (HYG, JNK) have already delivered a return of 5.16% YTD, and now yield just 350 basis points more than comparable Treasurys.
- ETFs: HYG, JNK, HYLD, HYS, SJNK, SJB, HYHG, ANGL, HYLS, UJB, XOVR, THHY, SHYG, QLTC, HYGH, HYND, HYZD
May. 21, 2014, 12:01 PM
- 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
May. 12, 2014, 12:50 PM
- The average junk bond yield of 5.18% is higher than the all-time low of 4.93% hit exactly one year ago, but valuations may be even richer now, says Citi.
- First off, Treasury yields are higher today, meaning spreads are narrower than they were last year. Secondly, current yields have been sustained at these low levels for a much longer period of time than last year. Citi also notes May has been a seasonally weak period for high-yield ever since the financial crisis.
- "Will elevated valuations and the calendar turning to May cause the bears to come out of hiding," asks Citi. "To be honest, it’s been very difficult being a bear in this market. The relentless Treasury rally has caught us by surprise."
- ETFs: HYG, JNK, HYLD, HYS, SJNK, PHB, SJB, HYHG, ANGL, HYLS, UJB, XOVR, THHY, YPRO, QLTC, SHYG, HYND, HYZD
Apr. 28, 2014, 12:27 PM
- The quest for yield as it relates to the bidding up in junk bond prices will end in tears, says JPMorgan strategists, but not until at least next year. Defying the bears, high yield prices continue are heading higher this year, and - putting its finger in the wind - Barclays late last week lifted its full-year return forecast to 5.5-6% from 3.5%.
- The team takes note of the spread to Treasurys - it's fallen to 345 basis points, already below the firm target of 350. "Although some of the incremental risk-taking could cause some challenges in the medium to long term, we do not see cause for concern in 2014 and believe high yield will continue to be well supported."
- The shorts? The volume of borrowed shares on BlackRock's HYG soared to an all-time high of $3.6B at the end of last month. For State Street's JNK, short bets neared $1.3B, also a record.
- ETFs: HYG, JNK, HYLD, HYS, SJNK, PHB, SJB, HYHG, ANGL, HYLS, UJB, XOVR, THHY, QLTC, SHYG, YPRO, HYND, HYZD
Apr. 25, 2014, 12:59 PM
- 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
Apr. 23, 2014, 12:52 PM
- In what may or may not end up being a bell-ringer of a deal, French cable company Numericable finalizes its record €7.9B junk bond offering, reportedly pricing the yield even lower than the initial whisper numbers. The size blows past the previous record - Sprint's $6.5B issuance last year.
- This deal is spread over €2.25B of euro-denominated paper, $7.75B of dollar-denominated, and across three tranches of varying maturities.
- RBS's Albert Gallo: “The new deal highlights strong growth in the European high-yield bond market, which has grown fivefold over the past five years to nearly €300B . . . Despite the strong supply, we expect European high-yield spreads to continue to tighten over the year, on recovering growth, easy ECB policy, stable fundamentals and low default rates.”
- The proceeds are to be used to fund Altice's (Numericable's parent) purchase of Vivendi's telecoms business.
- Previously: Largest junk-bond deal ever on tap
- ETFs: HYG, JNK, HYLD, HYS, SJNK, PHB, SJB, HYHG, IHY, ANGL, HYXU, PGHY, HYLS, UJB, XOVR, THHY, YPRO, SHYG, QLTC, IJNK, HYND, HYZD
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