Bonds: High Yield

(New York)

There has been a lot going on in the SPAC world, and high yield bonds have been very active lately given the rate environment too. But from a casual glance it would be hard to see that the two have much impact on one another. Yet, as it happens, SPACs are helping strengthen the high-yield bond market. According to the Wall Street Journal, “The wave of cash raised by special-purpose acquisition companies is rolling into the junk debt market, aiding distressed companies and rewarding investors who own their bonds and loans … SPACs, also known as blank-check companies, have issued roughly $100 billion of stock this year, a record, to buy private companies and take them public. Some SPACs are targeting companies with below-investment-grade credit ratings, hoping to use their cash piles to pay down debt and grow the businesses”.


FINSUM: When there is that much money in search of targets, it makes perfect sense that the search would extend into the high yield market.

(New York)

The recovery has boosted the junk bond market as investors saw investment-grade bonds and government debt perform…see the full story on our partner Magnifi’s site

(New York)

Despite the big losses in Treasuries, high yield bonds have been doing well, and according to Fidelity that seems likely to continue. Advisors could be forgiven if they are wondering “how?”. The answer is that the big reason bonds are losing is interest rate risk, and it so happens that high yield bonds have some of the lowest interest rate risk around because of their higher coupons and shorter terms. According to Adam Kramer, who managers Fidelity’s Strategic Income Fund, “an economic recovery may be on the horizon and the Fed may avoid tightening monetary conditions for some time”, which he says means the high yield market “could offer investors the best of both worlds in 2021”.


FINSUM: High yield bonds have the lowest exposure to the market’s major risk at the moment and also the upside of an economic recovery. The picture is bright.

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