High Yield Corporate Bonds For Yield in 2013

High Yield Corporate Bonds have enjoyed four solid years of returns while investors’ hunger for income-producing assets has pushed the sector’s yields down near record-low levels. As 2013 gets underway, some investors are again wondering if high-yield corporate debt is overvalued after such a strong run.

While High Yield Corporate Bonds were a high yield favorite last year, S&P Capital IQ reports the "junk" bond market may be a bit overpriced, it is still a hot spot to gain yield.  Especially since the low-yield environment in the U.S. is going to linger for some time.

“High Yield Corporate Bond performance is correlated to the corporate growth cycle, which remains solid albeit slowing, “ Alec Young of S&P Capital said. “High-yield defaults are at only 2.7% versus a 4.5% long-term average. While the 5% spread over 10-year U.S. Treasuries may not narrow much further, the 6% yield for the asset class warrants exposure even if it’s more a coupon play than a capital gain play after four years of stellar gains driven by narrowing credit spreads.”

Although High Yield Corporate Bonds are often considered high-risk and speculative, the asset class has outperformed the S&P 500 the past five years with less volatility, says Peritus Asset Management, the subadvisor for Peritus High Yield ETF (NYSE: HYLD).

Recent talks of a High Yield Corporate Bond bubble in fourth quarter of 2012 have been laid to rest for the start of 2013. Despite modest outflows from selected funds, the fact remains that inflows into High Yield Corporate Bonds were steady and heavy for most of 2012.

Peritus High Yield ETF is a component of the D2 Capital Management Multi-Asset Income Portfolio.  High Yield Corporate Bonds are also elements of many of the funds we use in our D2 Fixed Income and Equity/Income Model Portfolios.

Source:  Tom Lydon, ETF Trends

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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