Here’s the lowdown on those high-yield bond ‘bargains’ -- GMO and Marketwatch

davfor

"The yield of the main junk bond index, the Bank of America Merrill Lynch High Yield Master II, is around 7.6% now, up from a low of less than 6% in early 2014....but nobody should jump in before considering the arguments of a research paper from Boston-based asset management firm, Grantham, Mayo, van Oterloo (GMO)."

"Author of the GMO paper, Ara Lovitt, notes that maturities are a few years away...But Lovitt’s study shows that investors shouldn’t necessarily feel safe with a maturity wall few years away. "

"...in Exhibit 3 we superimposed the path of actual high-yield defaults on top of the maturity wall at the market peak to show how an entire default cycle came (and went) years before the peak of the maturity wall would appear to have been much of a concern"



"Overall, to the extent that there was a maturity “signal,” it told investors to be vigilant when they otherwise might have been complacent (before maturities hit) and to be aggressive when they otherwise might have been cautious (precisely when maturities hit)."

See: Marketwatch and GMO

VintageFreak

If I hold a bond to maturity, I will get paid, right? We are saying maturity is way out there and asset is risky, so issuer may not come good? Why not? The government will bail out the issuer and investor will at least get principal back right?