Tags: Pimco | bond | coupon | junk

Pimco Says High-Yield Bond Buyers to Collect Coupons in 2014

Thursday, 30 Jan 2014 12:31 PM

Pacific Investment Management Co., the world’s largest bond manager, expects speculative-grade bond investors to largely collect the coupons paid by the debt in 2014 after an average 20 percent gain in the last five years.

Sectors that may outperform this year include lower-priced BB to B rated debt and high-yield health-care providers given their “non-cyclical profile and the aging population demographics in developed markets,” portfolio managers Andrew Jessop and Hozef Arif wrote today on the company’s website. The market will see increased supply from so-called fallen angels, or companies that have been downgraded from investment grade.

Returns on high-yield debt have soared as the Federal Reserve has held its benchmark interest rate between zero and 0.25 percent since December 2008, forcing investors to seek out riskier securities for larger returns. Company bonds of the riskiest borrowers currently yield 6.31 percent, below the 10-year average of 9 percent, after the securities gained 7.42 percent last year, according to the Bank of America U.S. High Yield Index.

Record low rates have helped firms refinance debt with U.S. companies raising a record $1.5 trillion last year. Issuance this year will probably fund more buyouts and shareholder- friendly activities.

“We believe 2014 could be another year of returns that are dominated by carry against a backdrop of a stronger growth outlook, low default environment and generally supportive capital markets conditions,” Jessop and Arif wrote.

Defaults globally fell to 2.6 percent last year from 2.9 in the year-earlier period, Moody’s Investors Service said in a Jan. 9 report. High-yield, high-risk bonds are rated below Baa3 by Moody’s and lower than BBB- at S&P.

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Pacific Investment Management Co., the world's largest bond manager, expects speculative-grade bond investors to largely collect the coupons paid by the debt in 2014 after an average 20 percent gain in the last five years.
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2014-31-30
Thursday, 30 Jan 2014 12:31 PM
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