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Junk bonds about to hit record highs? How can that may be possible?

JunksterJunkster
edited August 2014 in Fund Discussions
Everyone ran for cover recently as we saw large weekly outflows in U.S. junk bond funds culminating in the largest on record at 7.1 billion. This amid seemingly every financial columnist, Wall Street strategist, and junk bond guru screaming about the the imminent demise of this wildly overvalued market. So how bad was the recent carnage? Using the Merrill Lynch High Yield Master II Index (the proxy for junk bonds) it was a mere 1.95% correction from closing high to low. Hardly even a garden variety correction compared to some others since the infamous mid-December 2008 bottom in junk bonds. Since the bottom the market has already rebounded 1.49% and sits only around one half of one percent from all time highs. A pretty impressive performance considering all the negative hype and record outflows. Stay tuned for what comes next - all times highs or a decline below the recent bottom.

Edit: I should mention the above refers to junk corporates not junk munis as that market continues to set YTD highs seemingly week after week.

Comments

  • Dex
    I think one of the problems when they talk about net inflow/outflows is that they talk in $ terms instead of percentages.
  • heezsafe
    7.1B, with 1.2 Trillion outstanding--- ooooh, scary. And, or course, for every buyer there must be a seller, so it's only a matter of a price decline and spread widening. And what was that overall decline? From circa 106 .... to 103 something, still above par, hardly a tectonic shift. The big ETFs, where the true garbage is mixed with quality, decline a whopping 6-7% ; the better MFs decline... 1.5-1.8%, or less.

    And shortly (very shortly) thereafter, after the "market makers" can no longer squeeze the herd down, what to we get? Michael Aneiro et al., those who have been beating the drum for a year to protect us from these "perilous" instruments of doom, post something along the lines of:

    Does the high yield correction offer investors a buying opportunity?
    (ah yes, the seemingly innocent rhetorical question; behavioral finance at play and never ever sleeps)

    Rinse and repeat.
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