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Regulators Looking into Bond Funds with Hard to Sell Assets.
The increasing numbers of high yield bonds and other instruments in bond funds are making regulators look into what would happen if everyone tries to sell.
Not to you; but thoughts about the information presented in the article.
We, being "investors"; operate, in part, that we have the presumption of the full faith and credit of supposed to big to fail soverign governments (central banks) to have our back side when things don't go well in the financial system.
The ultimate concern for individual investors should be restrictions that could be put in place to access one's own monies. And yes, such restrictions are only a matter of a decision that it is the right thing to do during a financial stress situation.
As to the center point of the article. High yield or junk bonds and related poorer quality debt exist for the sole fact that those organizations and/or companies placing these financial instruments into the market place are perceived or known to be "on the edge" with the ability to honor a full payback of the monies "loaned" to them by the investors in the bonds issued. It does not matter who the issuing entity may be. One needs to ask whether they are more comfortable or comfortable at all; investing in bonds issued by "some" countries (make your own list) or the HY bonds being issued (for example) by well known company names in the U.S., who have such hugh existing debt burdens and "on the edge" of profitable operations; but still need more money to continue to attempt to operate their business model and keep their heads above the waterline of profit. A list of holdings (via prospectus) of junk debt issues helps to indicate how much one may have their monetary butts hanging over the "other" side of the quality fence. The same may apply to some of the equity holdings of various mutual funds.
While I can't disagree with premise of the article; there remains such a tight correlation between junk debt and equities (supposed high quality companies or not); that this "financial intercourse" keeps both areas on the edge, and relying upon one another.
If the junk credit issues where to crumble, the financial fallout in equity sectors would be widespread, eh?. We witnessed this event 6 years ago.
Below are two common, and widely used indicators.
A total return view from the period of Oct., 2007 (when indicators started to become "rough") through March 4, 2009:
SPY = -51% HYG = -27%
We all have to pick our own investment poison (during the bad times); with the only apparent difference being that some will make one's investments more sick than the other.
We rely, in part; upon the bond rating agencies, with their abilities and with the data they are provided, to present what we believe to be the facts relative to bond qualities.
Even to the fact of whether one is supposed to take more comfort in a circumstance that the ECB may purchase "junk" credit issued by Greece (not picking on this country, but an existing circumstance); because no one else wants to buy the bonds. Magic money moves from the ECB to the central bank of country "x". Is this supposed to help me feel better that something, if anything; has been fixed? Not at this house. The "electronic" credit, the money loaned, is parked as a data file for a spreadsheet. What the heck becomes of the outstanding monies that were lent?
The above thinking is based upon course studies over many years; resulting in the "Whatsamatter U" diploma hanging on the wall, at this house. The degree didn't cost much; and that may be evident in this write.
Comments
Not to you; but thoughts about the information presented in the article.
We, being "investors"; operate, in part, that we have the presumption of the full faith and credit of supposed to big to fail soverign governments (central banks) to have our back side when things don't go well in the financial system.
The ultimate concern for individual investors should be restrictions that could be put in place to access one's own monies. And yes, such restrictions are only a matter of a decision that it is the right thing to do during a financial stress situation.
As to the center point of the article. High yield or junk bonds and related poorer quality debt exist for the sole fact that those organizations and/or companies placing these financial instruments into the market place are perceived or known to be "on the edge" with the ability to honor a full payback of the monies "loaned" to them by the investors in the bonds issued.
It does not matter who the issuing entity may be. One needs to ask whether they are more comfortable or comfortable at all; investing in bonds issued by "some" countries (make your own list) or the HY bonds being issued (for example) by well known company names in the U.S., who have such hugh existing debt burdens and "on the edge" of profitable operations; but still need more money to continue to attempt to operate their business model and keep their heads above the waterline of profit.
A list of holdings (via prospectus) of junk debt issues helps to indicate how much one may have their monetary butts hanging over the "other" side of the quality fence. The same may apply to some of the equity holdings of various mutual funds.
While I can't disagree with premise of the article; there remains such a tight correlation between junk debt and equities (supposed high quality companies or not); that this "financial intercourse" keeps both areas on the edge, and relying upon one another.
If the junk credit issues where to crumble, the financial fallout in equity sectors would be widespread, eh?. We witnessed this event 6 years ago.
Below are two common, and widely used indicators.
A total return view from the period of Oct., 2007 (when indicators started to become "rough") through March 4, 2009:
SPY = -51%
HYG = -27%
We all have to pick our own investment poison (during the bad times); with the only apparent difference being that some will make one's investments more sick than the other.
We rely, in part; upon the bond rating agencies, with their abilities and with the data they are provided, to present what we believe to be the facts relative to bond qualities.
Even to the fact of whether one is supposed to take more comfort in a circumstance that the ECB may purchase "junk" credit issued by Greece (not picking on this country, but an existing circumstance); because no one else wants to buy the bonds. Magic money moves from the ECB to the central bank of country "x". Is this supposed to help me feel better that something, if anything; has been fixed? Not at this house. The "electronic" credit, the money loaned, is parked as a data file for a spreadsheet. What the heck becomes of the outstanding monies that were lent?
The above thinking is based upon course studies over many years; resulting in the "Whatsamatter U" diploma hanging on the wall, at this house.
Take care of you and yours,
Catch