Tags: junk | bonds | risk | yield

FT: Experts Say Junk Bonds Might Be Poised for Tumble

By    |   Wednesday, 05 March 2014 09:43 AM

High-yield (junk) bonds have enjoyed a juicy rally since the end of the 2008-09 financial crisis, but some experts say the party may have run its course.

Over the past 10 years, the Barclays U.S. Corporate High Yield Index has generated a total return of 131 percent, compared with 69 percent for investment-grade corporate bonds, the Financial Times reports.

But already the corporate default rate has begun to creep higher, although it remains below the historical average of 4.4 percent, according to the paper.

Editor’s Note:
5 Shocking Reasons the Dow Will Hit 60,000

Standard & Poor’s forecast the 12-month trailing default rate for junk-rated companies will increase to 2.5 percent by year-end, from 1.7 percent in January.

Junk bonds yields have dropped too low to justify their risk, Kate Warne, investment strategist at Edward Jones, tells the Times.

"Junk is getting junkier and investors need to watch the market closely."

Sabur Moini, a portfolio manager at Payden High Income Fund, apparently concurs. "The problem is there are no more hidden gems out there in markets," he told the Times.

"In order to capture more yield, many investors just keep taking in more risk."

Bank of America Merrill Lynch high-yield strategists also express caution about junk bonds in a commentary obtained by Barron's. "[The yield] for our high yield index currently stands at 5.19 percent, just 20 basis points above its all-time low on May 8th and 9th of 2013," they write.

"In our view, the market is looking rich and is likely due for a pullback, if for no other reason, on valuation."

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

Related Stories:

© 2021 Newsmax Finance. All rights reserved.


StreetTalk
High-yield (junk) bonds have enjoyed a juicy rally since the end of the 2008-09 financial crisis, but some experts say the party may have run its course.
junk,bonds,risk,yield
295
2014-43-05
Wednesday, 05 March 2014 09:43 AM
Newsmax Media, Inc.
 
Newsmax TV Live
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved