High Yield Bonds Remain Attractive

Wes Sparks and Martha Metcalf, respectively head of U.S. fixed income and senior high-yield portfolio manager at Schroders, say non-investment grade bond valuations look like they’re starting to peak, but the market is in the first month of what’s historically its best three-month period of the year:

"...High yield bonds remain attractive versus investment grade credit and other fixed income asset classes for the near-term. Many macro risks have subsided, default risk remains benign, corporate earnings reports so far this quarter have been supportive of current high yield valuations, and technicals are positive and could turn even more positive as supply tapers off into the holidays while institutional investors continue to have demand for yield and dealer inventories remain light.

With the global high yield index trading just inside of a 5.5% yield and a spread of just over four percentage points versus Treasuries, we believe the high yield market is now close to fair value. We expect only modest capital gains from here through year end but positive returns in December primarily due to coupon income. The market has entered a seasonally supportive period: The period from November through January is typically the strongest 3-month period of the calendar year for high yield returns. In fact, returns for the high yield asset class are almost always positive in December – as was the case in 24 out of the past 25 years..."

Schroders adds that demand from high yield mutual fund net inflows and institutional investors should outpace net supply, while the Fed’s increased emphasis on forward guidance as it starts to taper its asset purchases should help soothe markets at a time of tame inflation.

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 7.68% yield (as of 26 November 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.

 

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