High Yield Bond Sales Soar to Record / WSJ

hank

Excerpt from Saturday’s (November 27) Wall Street Journal

“Investors’ hunt for higher fixed-income returns has powered sales of low-rated corporate bonds to a record. U.S. companies, including medical supplier Medline Industries LP and videogame maker Roblox Corp., have sold more than $455 billion of bonds with speculative-grade credit ratings this year through Monday … That already beats the full-year total for 2020, when junk-bond sales set a then-record of $435 billion.

“This year’s bond sales mark a notable reversal from the spring of 2020, when investors’worries about widespread bankruptcies and defaults sparked a selloff in low-rated debt … In a recent report, the International Monetary Fund warned that increased leverage could make the financial system more vulnerable to corrections…”

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Crash

+1. Keeping my eye on that sector, still..... No moves until after the New Year.

Sven

High yield bonds are the ones with positive gain this year while high quality bonds are in red. Investors like to invest where the can make money. Last Friday it was the reverse as the high quality bonds swing to positive. The market is up on Monday and junk bond is back.

AndyJ

The direction of junk corporate yields is up. As measured by the ICE BoA U.S. HY Index Effective Yield, they've blown out to 4.80, the highest they've been in the last year. For me, that means wait a bit to see how high they may go, to maybe grab an opportunity to pick up some yield and capital gains in the near (?) future.

FRED chart

carew388

+1 Andy The question is: which trading vehicle is best for this new opportunity- oef or etf (I'm too chicken to buy a closed-end fund!)

yogibearbull

ETFs are not good vehicles for HY (HYG, JNK, muni HYD, etc). They are liquid wrappers of illiquid underlying securities. In a selloff, they may develop CEF like discounts.

Low-cost OEFs are fine for HY ( VWEHX, SPHIX, aggressive FAGIX, muni NHMAX (closed) but related CEF is NMZ).

AndyJ

carew388 said:

+1 Andy The question is: which trading vehicle is best for this new opportunity- oef or etf (I'm too chicken to buy a closed-end fund!)

@Carew, depending on the exact situation, I'd prob'ly lean toward SVARX in an open-end fund. Making bucks after a blowout is their M.O. But I'm watching PDI and PDO with interest; they've both sold off lately and might come into bargain territory at about the right time.

Sven

Open ended, active managed funds are better bets. T. Rowe Price would be my first choice.

carew388

+1 Slightly off topic but when will PRHYX reopen ?

Sven

PRHYX is closed to new investors. However, a reasonable substitute HY bond fund is still open - US High yield, TUHYX. Performance/risk of PRHYX is a bit better.

On a lower risk tier is TRP Floating Rate fund, PRFRX. The duration is less than one year with 30 day yield of 3.8%. Bank loan or floating rate fund was brought to my attention by David Giroux of TRP Capital Appreciation fund.

Before diving into these funds, beware that during spring 2020 drawdown, they were down over 10% and bounced back quickly for the year.

yogibearbull

@Sven, Spring 2020?

Sven

Yes, the post has been corrected.