High Yield Bonds Poised To Outperform

Non-Investment Grade bonds are already up more than 6% so far in 2013 – a year when other types of bonds have stumbled – but that doesn’t preclude high yield from continuing to outperform. So says ING Investments in its latest fixed-income report:

"Despite not really weakening through the noise in Washington, the high yield market is biased to the upside given strong technicals and still-supportive fundamentals. Until more supply comes on line, the path of least resistance seems higher. We may get a year-end rally, but the looming debt-ceiling debate in early 2014 is likely to limit its magnitude and/or duration...

"Longer term, high yield appears well positioned to outperform most other fixed income assets. With investors more concerned about interest rate risk than credit risk, high yield spreads offer more-than-adequate compensation for likely credit losses and the ability to absorb at least a portion of any further rise in interest rates..."

In this range-bound, opportunist’s bond market that we seem to be in, Non-Investment Grade bonds can come close to another coupon-clipping year in the year ahead, without too much in the way of default risk.

"...Corporate profitability remains relatively robust, though profit growth has slowed sharply; combined with steady debt growth. Despite the sharp rally in the last two weeks, investment grade spreads remain attractive..."

Source:  Michael Aneiro, Barrons

AdvisorShares Peritus High Yield (HYLD) is a component of the D2 Capital Management Multi-Asset Income Portfolio.  It currently has a 7.8% yield (as of 24 October 2013).

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.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.