Tags: Investors | flock | risky | debt

Reaching for Yield, Investors Flock to Risky Debt

By    |   Sunday, 06 April 2014 05:24 PM

Investors are showing a ravenous appetite for low-rated debt that's backed by everything from companies to home mortgages to auto loans, in a seemingly never-ending search for yield, The Wall Street Journal reports.

Taxable high-yield mutual funds and exchange-traded funds saw an inflow of $3.42 billion in the first quarter, compared to an outflow of $4.98 billion for all of 2013, according to Lipper.

The Barclays U.S. Corporate High Yield Index has provided a return of 3.1 percent so far this year.

Editor's Note: 18.79% Annual Returns ... for Life?

Demand for the lowest-rated tranches of some asset-backed securities has been so strong that issuers have been able to reduce their yields, investors told The Journal.

The basis for investors' behavior is anticipation that the Federal Reserve won't raise short-term interest rates for at least a year at the same time that economic growth accelerates, the paper reports.

That environment should limit defaults, permitting investors to profit more from low-rated debt than high-rated debt, investors told The Journal.

Some are worried about the risk of this speculative activity. There is danger in investors' "reach for yield" and the "incentives for these firms to take on excessive risk," Fed Gov. Daniel Tarullo said in a speech last month, The Journal reports.

He's not the only one concerned. Investors' plunge into low-quality bonds and loans is "a scary, end-of-cycle sort of move," said Laird Landmann, co-head of fixed income at TCW, according to Barron's.

"Credit risk is the risk you should be worried about now. . . . If you don't get out before the party ends, you'll be in trouble."

Editor's Note: 18.79% Annual Returns ... for Life?

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Investors are showing a ravenous appetite for low-rated debt that's backed by everything from companies to home mortgages to auto loans, in a seemingly never-ending search for yield, The Wall Street Journal reports. Taxable high-yield mutual funds and exchange-traded funds...
Investors,flock,risky,debt
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2014-24-06
Sunday, 06 April 2014 05:24 PM
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