Tags: Pimco | Junk | Bonds | market

Pimco: Junk Bonds Attractive as Market Turmoil Boosts Value

Wednesday, 08 October 2014 05:49 PM

The biggest losses in the junk-bond market in more than a year are drawing Pacific Investment Management Co. to the debt as it finds attractive opportunities unearthed by the sell-off last month.

“The recent market turmoil has improved the relative value of high-yield bonds, and we believe provides an attractive entry point,” Andrew Jessop, a money manager at the firm, wrote in comments posted on the company’s website. “The case for high-yield bonds is a compelling one.”

The below investment-grade notes suffered their biggest decline in 15 months, with the securities losing 2.1 percent in September, Bank of America Merrill Lynch index data show. That was accompanied by investors yanking money out of funds that invest in the debt with stretched valuations, elevated geopolitical risk and a swelling of sovereign credit concerns driving those outflows, according to Pimco, whose co-founder Bill Gross departed on Sept. 26.

The average yield on the debt climbed from about the lowest level of the year at 5.8 percent to 6.5 percent in the previous quarter, index data show. A resurgence in the market has enabled yields to fall back to 6.3 percent.

“Fundamentals have improved slightly at the margin, and we believe this has been a catalyst for institutional investors to consider utilizing the recent selloffs and higher yields as an opportunistic entry point to add exposure to high yield,” Hozef Arif, another money manager at the Newport Beach, California based firm said in the statements.

Pimco Fund

The total assets managed by the Pimco High Yield fund dropped to $10.75 billion at the end of last month, the least since December 2010.

Junk bonds are rated under BBB- at Standard & Poor’s and below Baa3 at Moody’s Investors Service.

Despite the turbulence, the market will still offer “coupon-clipping” returns to investors, Jessop said. Gains of 4.3 percent on the speculative-grade bonds based on the Bank of America Merill Lynch Index, compares with an advance of 7.4 percent last year and 15.6 percent in 2012.

Not all sectors offer promise, with secular demand challenges in retail and mining contributing to stress in the industry, Arif said.

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The biggest losses in the junk-bond market in more than a year are drawing Pacific Investment Management Co. to the debt as it finds attractive opportunities unearthed by the sell-off last month.
Pimco, Junk, Bonds, market
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2014-49-08
Wednesday, 08 October 2014 05:49 PM
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