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The TRP HY offering that's mentioned: how is this HY? I see the monthly div. is in the same neighborhood with my DLFNX core-plus fund and my TRP global multi-asset bond fund...?
Crash ... you might find your answer by checking the effective duration, effective matuity and weighted cupon for each fund. I am thinking the high yield fund is going to have a shorter duration and maturity over your core-plus fund. Not certain though.
Five grafs below the first reference to PRHYX, the article says "The T. Rowe fund is closed to new investors ...." A bit of a lag with that info ...
The HY spread is still widening, and it's been much wider in the past; however, neither seems to concern the author. Buying when something's down, and hasn't yet broken the downward momentum, isn't quite as "attractive" as he thinks, imho.
At first glance, I was skeptical of the article. --- And I find the writer very self-serving in only interviewing high-yield managers -- what are they gonna say but "great time to buy". The writer COULD have interviewed some go-anywhere bond managers to see if THEY think there is value in junk. But he didn't do that. Very amateurish.
That said, junk has a general seasonal tendency to do well from early Oct through December. Moreover, the sectors of greatest concern in junk, energy & materials/mining, have had their problems well-advertised. If capital markets function in a manner to anticipate and discount future probabilities & outcomes, then presumably, energy and materials/mining obligations have realized the lion's share of their declines. IF the declines in those sectors is largely complete, then the risk of widening spreads for junk may be minimal. -- Keep in mind, while Carl Icahn recently expressed concerns about junk generally, he has a major equity position, recently established in Freeport McMoran. Would he lay on such a position if he felt the commodities decline had a lot further to go...?
Then too, it looks like the lousy commodity pricing (which has harmed the prospects of energy and materials/mining), means no inflation to speak of, and "lower, longer" rates -- which would tend to be supportive of yieldy instruments like junk.
I've virtually nothing in dedicated junk-vehicles here. But I think I will lay on partial positions in the coming week in VWEHX (in IRA) and PHIYX (in 401k). -- Nothing too big at first. But if the seasonal strength begins to assert itself, I would then quickly add to the positions. -- The seasonals tend to pivot rather sharply in junk -- wait too long and you've missed the move.
Edmond: "... junk has a general seasonal tendency to do well from early Oct through December." " The seasonals tend to pivot rather sharply in junk -- wait too long and you've missed the move."
True dat. With the spread having widened so far and so rapidly but not yet to a historical extreme, I've been thinking more in terms of a cyclical buying opp'ty a little farther down the road. But there could be a positive move shorter term that might be worth getting in on.
By the way, that's a nice (and very accurate, imho) summary of DBLTX + DBLFX on another thread this morning.
Just some ramblings from perspective of a T. Rowe Price investor,
I owned PRHYX for many years. It's one of those conservative funds that are said to earn a "B" during up markets and an "A" on the way down. Vaselikov is good. He's been there nearly 20 years however - a long time by TRP standards. He also manages their new Global High Income Fund, RPHIX - in existence less than a year. I'd view that as a good alternative to PRHYX, which is closed, as long as Vaselikov stays.
Not very familiar with the HY sector since selling PRHYX couple years ago. But as one who sometimes likes to speculate on beaten up sectors, I'd urge caution. That's always the case with beaten up sectors. You just don't know how long and how far they'll tumble.
An outside-the-box thought is to consider Price's RPSIX (Spectrum Income) for some moderate growth potential. While not fond of the investment grade bond part, I like that the fund is experiencing a rare bad year and that approximately 50% of its holdings (owned through other funds) are having miserable years. These include high yield bonds, EM bonds and a dividend-paying stock fund (PRFDX). When these beaten up sectors turn, you'll get some nice payback out of stodgy RPSIX - without having undertaken a lot of risk.
Edward Altman, the New York University professor who developed the Z-Score method for predicting bankruptcies, says “defaults will breach the historical high next year and the Fed is the “wild card” that has the power to determine how quickly the current credit cycle ends.” (Bloomberg) “We have blamed the wider Junk Bond spreads on Energy issuers, but last week there was a buyer’s strike. If this continues, you can say goodbye to easy financing for M&A which will remove one large pillar of support from stock prices”. (361 Capital)
* Altice on Friday sold $4.8 billion of junk bonds to fund its $10 billion purchase of Cablevision Systems Corp., according to S&P Capital IQ LCD. When the deal was shopped earlier this month, Altice expected to sell $6.3 billion of debt, investors said. A 10-year bond was priced to yield 10.875%, compared with yields as low as 9.75% that were suggested by bankers initially, according to S&P Capital IQ. * Olin on Friday sold $1.2 billion of bonds to pay for its pending acquisition of Dow Chemical Co.’s chlorine-products unit. Earlier in the month, Olin was expected to sell $1.5 billion of bonds, fund managers and analysts said. The annual interest rate on Olin’s 10-year bonds sold Friday was 10%, up from 7% expected earlier in the month, according to S&P Capital IQ. * Companies have announced $3.2 trillion of M&A this year, according to Dealogic, emboldened to merge by cheap debt and the long stock rally that began after the financial crisis. That puts 2015 on pace to rival 2007 as the biggest year ever for takeovers. Issuance of junk bonds backing M&A deals hit a year-to-date record of $77 billion through Friday, according to data from Dealogic. * A souring of investors on junk bonds could limit the availability of financing for deals that require a lot of borrowing. Banks have been under pressure from federal regulators to reduce their loans to such companies, and a pinch in the bond market could leave those deals struggling for financing. (WSJ) * After investors snapped up more than $37.5 billion of bonds issued by junk-rated energy companies in the first six months of 2015, just $5.9 billion has been raised since then, according to data compiled by Bloomberg. (Bloomberg) * Junk-bond investors are bracing for a surge in corporate defaults that would exceed the most pessimistic forecast from credit raters as the Federal Reserve contemplates its first interest-rate increase since 2006. * A measure of distress in the market is suggesting investors have priced in a default rate of 4.8 percent during the next 12 months, according to Martin Fridson, a money manager at Lehmann Livian Fridson Advisors LLC. That’s almost two percentage points higher than the pace being projected for June next year by Standard & Poor’s, the world’s biggest credit rater, as concern mounts that energy companies that loaded up on cheap debt are going to struggle to refinance. “Unless there is a miraculous turnaround in oil prices there is likely to be a lot of defaults,” Fridson said. “The rating agencies’ approach isn’t capturing the fact that a large part of the economy is far out of step with the overall picture of the mark” (Bloomberg) * On HY fair valuation from Martin Fridson this week: Now that the sector has sold off sharply, it’s finally at fair value, finds Fridson, chief investment officer at Lehmann Livian Fridson Advisors. He uses a model that includes current economic and market conditions to judge valuations. (Barrons) * Note that fair value can move to significantly undervalued as happened in 1991, 2002 and 2008. Recessions are a bear (no pun intended). * The S&P U.S. High-Yield Corporate Bond Index posted a yield to maturity of 7.51% on Tuesday, up from a recent low of 6.21% in late February. Morningstar data shows that the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has lost 3.6% in the past six months.
Remain tactical with your HY exposure. We are seeing liquidity issues in the market. [...] Corrections create the next great opportunity. As prices decline, yields move higher. Defaults are only a bad thing if you sit on the bus as it falls over the ledge. It will be higher defaults and declining prices and higher yields that will bring us returns like those achieved after the prior crisis.
@AndyJ@Edmond Well, I hope you two get your signals straight this year about who is going to send the memo re. positive "Oct-Dec seasonality." Last year, Q4, Mr. Junk Bond Market didn't get it.
Yes, andy, I am aware that one year (last year) did not adhere to seasonal patterns. Looking back one year and saying "ah hah!" doesn't negate that seasonal patterns do exist over time. US equities 'on average' have earned +100% of their return between 11/1 through 04/30. In no way does that 'average' return mean that stocks are positive every year. -- It means that from a probability perspective, the odds are greatly in your favor.
Qtr4 of 2008 was not a season of gumdrops and lollipops for junk bond funds as well. That's two of the last seven (28.6%). I suppose things may yet turn around in Qtr4 2015, but as Gundlach remarked in the Reuters phone chat I posted this a.m.: "I'll think about buying [junk bonds] when it stops going down every single day."
I'm always looking for yield, but I'm at my limit with respect to risk tolerance, where I'm at right now. I've held PREMX since 2010, and was late for the 2009 run-up. In the 5 years that have followed, it's paid me handsomely while I reinvest everything. Yes, that is EM, not HY. I read the article which included the reference to TRP HY fund and like the rest of you--- I did see--- divorced from the reference, further down, that the fund is closed. A global substitute was offered. Noted already, above, in this thread.
In my portf, PRSNX is 11.46% of total. PREMX = 14.43%. DLFNX = 2.7%...... Then, there are also bonds being held in my PRWCX and MAPOX. Just threw some money at MAPOX. (IRA.) I'll be throwing more money at MAPOX, soon, again.
Sector Report Guggenheim Partners High-Yield and Bank Loan Outlook - October 2015 October 14, 2015
Report Highlights
The Credit Suisse High-Yield Bond and Leveraged Loan Indices posted losses of 5.2 percent and 1.2 percent for Q3 2015, respectively, the worst performance since Q4 2008 for high-yield bonds and since Q3 2011 for bank loans. There may be some additional volatility ahead, but we are already seeing value that has resulted from spread widening over the past few months. The relative value of B-rated corporate bonds over higher quality credits looks especially attractive given our positive macroeconomic outlook. Leverage ratios, which have returned to historical highs, are indicative of a rapidly advancing credit cycle, but debt burdens are manageable given low borrowing costs. We believe leveraged credit markets have room to run in the current cycle.
Comments
Geez - You'd think author would note that.
The HY spread is still widening, and it's been much wider in the past; however, neither seems to concern the author. Buying when something's down, and hasn't yet broken the downward momentum, isn't quite as "attractive" as he thinks, imho.
That said, junk has a general seasonal tendency to do well from early Oct through December. Moreover, the sectors of greatest concern in junk, energy & materials/mining, have had their problems well-advertised. If capital markets function in a manner to anticipate and discount future probabilities & outcomes, then presumably, energy and materials/mining obligations have realized the lion's share of their declines. IF the declines in those sectors is largely complete, then the risk of widening spreads for junk may be minimal. -- Keep in mind, while Carl Icahn recently expressed concerns about junk generally, he has a major equity position, recently established in Freeport McMoran. Would he lay on such a position if he felt the commodities decline had a lot further to go...?
Then too, it looks like the lousy commodity pricing (which has harmed the prospects of energy and materials/mining), means no inflation to speak of, and "lower, longer" rates -- which would tend to be supportive of yieldy instruments like junk.
I've virtually nothing in dedicated junk-vehicles here. But I think I will lay on partial positions in the coming week in VWEHX (in IRA) and PHIYX (in 401k). -- Nothing too big at first. But if the seasonal strength begins to assert itself, I would then quickly add to the positions. -- The seasonals tend to pivot rather sharply in junk -- wait too long and you've missed the move.
True dat. With the spread having widened so far and so rapidly but not yet to a historical extreme, I've been thinking more in terms of a cyclical buying opp'ty a little farther down the road. But there could be a positive move shorter term that might be worth getting in on.
By the way, that's a nice (and very accurate, imho) summary of DBLTX + DBLFX on another thread this morning.
I owned PRHYX for many years. It's one of those conservative funds that are said to earn a "B" during up markets and an "A" on the way down. Vaselikov is good. He's been there nearly 20 years however - a long time by TRP standards. He also manages their new Global High Income Fund, RPHIX - in existence less than a year. I'd view that as a good alternative to PRHYX, which is closed, as long as Vaselikov stays.
Not very familiar with the HY sector since selling PRHYX couple years ago. But as one who sometimes likes to speculate on beaten up sectors, I'd urge caution. That's always the case with beaten up sectors. You just don't know how long and how far they'll tumble.
An outside-the-box thought is to consider Price's RPSIX (Spectrum Income) for some moderate growth potential. While not fond of the investment grade bond part, I like that the fund is experiencing a rare bad year and that approximately 50% of its holdings (owned through other funds) are having miserable years. These include high yield bonds, EM bonds and a dividend-paying stock fund (PRFDX). When these beaten up sectors turn, you'll get some nice payback out of stodgy RPSIX - without having undertaken a lot of risk.
On My Radar: Defaults Will Breach the Historical High Next Year – The Fed is the “Wild Card”
http://www.cmgwealth.com/ri/on-my-radar-defaults-will-breach-the-historical-high-next-year-the-fed-is-the-wild-card/
High Yield – Rising Defaults
Edward Altman, the New York University professor who developed the Z-Score method for predicting bankruptcies, says “defaults will breach the historical high next year and the Fed is the “wild card” that has the power to determine how quickly the current credit cycle ends.” (Bloomberg)
“We have blamed the wider Junk Bond spreads on Energy issuers, but last week there was a buyer’s strike. If this continues, you can say goodbye to easy financing for M&A which will remove one large pillar of support from stock prices”. (361 Capital)
* Altice on Friday sold $4.8 billion of junk bonds to fund its $10 billion purchase of Cablevision Systems Corp., according to S&P Capital IQ LCD. When the deal was shopped earlier this month, Altice expected to sell $6.3 billion of debt, investors said. A 10-year bond was priced to yield 10.875%, compared with yields as low as 9.75% that were suggested by bankers initially, according to S&P Capital IQ.
* Olin on Friday sold $1.2 billion of bonds to pay for its pending acquisition of Dow Chemical Co.’s chlorine-products unit. Earlier in the month, Olin was expected to sell $1.5 billion of bonds, fund managers and analysts said. The annual interest rate on Olin’s 10-year bonds sold Friday was 10%, up from 7% expected earlier in the month, according to S&P Capital IQ.
* Companies have announced $3.2 trillion of M&A this year, according to Dealogic, emboldened to merge by cheap debt and the long stock rally that began after the financial crisis. That puts 2015 on pace to rival 2007 as the biggest year ever for takeovers. Issuance of junk bonds backing M&A deals hit a year-to-date record of $77 billion through Friday, according to data from Dealogic.
* A souring of investors on junk bonds could limit the availability of financing for deals that require a lot of borrowing. Banks have been under pressure from federal regulators to reduce their loans to such companies, and a pinch in the bond market could leave those deals struggling for financing. (WSJ)
* After investors snapped up more than $37.5 billion of bonds issued by junk-rated energy companies in the first six months of 2015, just $5.9 billion has been raised since then, according to data compiled by Bloomberg. (Bloomberg)
* Junk-bond investors are bracing for a surge in corporate defaults that would exceed the most pessimistic forecast from credit raters as the Federal Reserve contemplates its first interest-rate increase since 2006.
* A measure of distress in the market is suggesting investors have priced in a default rate of 4.8 percent during the next 12 months, according to Martin Fridson, a money manager at Lehmann Livian Fridson Advisors LLC. That’s almost two percentage points higher than the pace being projected for June next year by Standard & Poor’s, the world’s biggest credit rater, as concern mounts that energy companies that loaded up on cheap debt are going to struggle to refinance. “Unless there is a miraculous turnaround in oil prices there is likely to be a lot of defaults,” Fridson said. “The rating agencies’ approach isn’t capturing the fact that a large part of the economy is far out of step with the overall picture of the mark” (Bloomberg)
* On HY fair valuation from Martin Fridson this week: Now that the sector has sold off sharply, it’s finally at fair value, finds Fridson, chief investment officer at Lehmann Livian Fridson Advisors. He uses a model that includes current economic and market conditions to judge valuations. (Barrons)
* Note that fair value can move to significantly undervalued as happened in 1991, 2002 and 2008. Recessions are a bear (no pun intended).
* The S&P U.S. High-Yield Corporate Bond Index posted a yield to maturity of 7.51% on Tuesday, up from a recent low of 6.21% in late February. Morningstar data shows that the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has lost 3.6% in the past six months.
Remain tactical with your HY exposure. We are seeing liquidity issues in the market. [...] Corrections create the next great opportunity. As prices decline, yields move higher. Defaults are only a bad thing if you sit on the bus as it falls over the ledge. It will be higher defaults and declining prices and higher yields that will bring us returns like those achieved after the prior crisis.
@AndyJ @Edmond
Well, I hope you two get your signals straight this year about who is going to send the memo re. positive "Oct-Dec seasonality." Last year, Q4, Mr. Junk Bond Market didn't get it.
"I'll think about buying [junk bonds] when it stops going down every single day."
Heezsafe, HYG was up today (10/5) +1.20%. By Gundlach's own admission, he is now looking at buying junk... Correct?
And, added to my bank loan (floating rate) fund (GIFAX) yesterday.
This increases my income sleeve form about 8% of my overall portfolio to about 10%.
Old_Skeet
In my portf, PRSNX is 11.46% of total. PREMX = 14.43%. DLFNX = 2.7%...... Then, there are also bonds being held in my PRWCX and MAPOX. Just threw some money at MAPOX. (IRA.) I'll be throwing more money at MAPOX, soon, again.
Guggenheim Partners
High-Yield and Bank Loan Outlook - October 2015
October 14, 2015
Report Highlights
The Credit Suisse High-Yield Bond and Leveraged Loan Indices posted losses of 5.2 percent and 1.2 percent for Q3 2015, respectively, the worst performance since Q4 2008 for high-yield bonds and since Q3 2011 for bank loans.
There may be some additional volatility ahead, but we are already seeing value that has resulted from spread widening over the past few months. The relative value of B-rated corporate bonds over higher quality credits looks especially attractive given our positive macroeconomic outlook.
Leverage ratios, which have returned to historical highs, are indicative of a rapidly advancing credit cycle, but debt burdens are manageable given low borrowing costs. We believe leveraged credit markets have room to run in the current cycle.
http://guggenheimpartners.com/perspectives/sectorreport/high-yield-and-bank-loan-outlook-october-2015