Displaying items by tag: high yield

(New York)

Investors hang onto your hats, a big fixed income rout might be coming. While it was easy to write Italy’s big bond losses off to its recent political crisis, the Wall Street Journal is arguing that all risky bonds may be in for a reckoning. There are a couple reasons. One is that just as in Italy’s two-year bond, many fixed income securities may hit a “double bottom”, which could lead to serious losses. But more fundamentally, many investors are now starting to view bonds higher up the quality spectrum more favorably, which means the market may suffer a significant “risk-off” period. Global high-yield bonds are down almost 4% already this year.

FINSUM: Our bigger worry than the points mentioned here is that as safer bonds start to get better yields from rising rates, there is less and less incentive to buy junk. That is a major change from the paradigm of the last few years.

(New York)

Are you on the look out for income stocks? While their position in one’s portfolio is changing given rising rates, good income stocks, especially safe ones, are always of value. The S&P 500 is currently only yielding about 2%, which is now less than two-year Treasuries. However, one can find very strong stocks with 3-4% yields. Those include Target and Qualcomm, the latter of which is yielding 4.2% and is a very well-covered stock. Also check out Seagate, CenturyLink, Pitney Bowes, and Navient.

FINSUM: These picks come from what seems to be a very diligent dividend-focused manager that was recently profiled in Barron’s. Our big question is how much dividend stocks might suffer in a rising rate period.

(New York)

Something very interesting is going on in the junk bond market—things are good. The market for risky corporate debt has seen a resurgence over the last couple of months, and even as benchmark yields have risen, returns for junk bonds have been positive. The spread between high yield and benchmark Treasuries has shrunk from 369 basis points to just 333 basis points since February 9th.

FINSUM: This is a very important move as it it is a positive sign about the business cycle. Junk bonds and other credits have often been leading indicators, and the fact that investors are still showing faith in them is very positive.

(New York)

The US credit market has not exploded, but as yields drift higher, the situation is worsening. High yield is seeing yields and prices back to where they were in 2016, though not quite as bad as in early 2016, which was the last time there was an equity market correction. There are big worries about the huge ($2.5 tn+) pool of triple B bonds, which look vulnerable. Triple Bs now account for half of the US investment grade market. The good news is that corporate earnings are in good shape, which means credit-worthiness is still strong.

FINSUM: We think fears about the credit market are a little overblown at the moment. Earnings and credit-worthiness are still strong, and there is going to be good demand for decent yields, which should keep things in a band.