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Why The Best Junk Fund Manager Since '11 Is Betting On A Rebound

TedTed
in Fund Discussions
FYI: Gene Neavin, co-manager of the top-rated $753 million Federated High Yield Trust, divides junk bonds into two categories: the 10 percent of the market issued by metals, mining and energy companies, and the 90 percent from everyone else.
While the first group faces serious problems, the second is in surprisingly good shape, according to Neavin, whose fund has the best five-year performance among its peers. His view contrasts with bleaker forecasts from the likes of DoubleLine Capital’s Jeffrey Gundlach.
Regards,
Ted
http://www.bloomberg.com/news/articles/2016-02-02/why-the-best-junk-fund-manager-since-11-is-betting-on-a-rebound

Comments

  • TSP_TransferTSP_Transfer
    edited February 2016
    Junk bond stress posts biggest jump since financial crisis
    Feb 2 2016, 14:28 ET | By: Stephen Alpher, SA News Editor [Contact this editor with comments or a news tip]

    Moody's Liquidity Stress Index jumped to 7.9% in January from 6.8% previously - the largest one-month move since March 2009. The gauge measures the number of companies carrying the agency's lowest liquidity rating of S G L-4.

    Stripping energy out, the index rose to 4.5% in January - the highest level since November 2010. In fact, six of the ten downgrades to S G L-4 this month were for companies outside the energy sector, though two of those are suppliers to commodity companies.

    Junk prices are having another rough session today, with HYG down 0.6% and JNK off 0.9% as Treasury prices post big rallies..
    http://seekingalpha.com/news/3074426-junk-bond-stress-posts-biggest-jump-since-financial-crisis

    Original Source
    Junk bond stress is spreading beyond energy, says Moody’s
    By Ciara Linnane Corporate news editor Published: Feb 2, 2016 11:43 a.m. ET marketwatch.com
    Oil and gas issuers have been pummeled in the last year by the collapse in oil prices, which has hurt the many shale players that emerged during the fracking boom. Many of those companies need an oil price of at least $60 a barrel to be profitable, according to energy consulting firm Rystad Energy.

    In December, Moody’s warned that companies in the sector are facing a spike in defaults and downgrades, while investors in their debt are looking at major losses. Companies in the oil and gas and mining sectors have issued nearly $2 trillion in bonds globally since 2010, many of them in the junk category.
    http://www.marketwatch.com/story/junk-bond-stress-is-spreading-beyond-energy-says-moodys-2016-02-02
  • hank
    edited February 2016
    These guys were on Bloomberg this morning telling folks to buy junk. I thought it was a paid infomercial at first. But Bloomberg presented it straight-faced like gospel.

    The pitch reminds me of an old gag poem that begins "That may be so. But I don't know ..."
  • vkt
    What I want to know is who wrote the oil hedges that have paid out billions to fracking companies keeping them alive?

    The way capital market equities have been tanking (see KCE), there is something going on in the big asset management and investment banking area that is causing a panic.

    The stress test for a bank is debt financing frackers with oil as collateral and then underwriting the hedges for the price of oil. When oil prices zoom upwards, they make billions but with oil going in the opposite direction, the collateral value goes down, the companies whose debt they hold begin to default on top which they have to pay out the hedges. Triple whammy.

    The latter seems like just the kind of situation our investment bankers would jump into with both feet when the going is good.
  • vkt
    To answer my own question above here is what was reported mid last year

    http://www.bloomberg.com/news/articles/2015-04-08/drillers-26-billion-in-hedges-spreads-price-plunge-pain
    For U.S. shale drillers, the crash in oil prices came with a $26 billion safety net. That’s how much they stand to get paid on insurance they bought to protect themselves against a bear market -- as long as prices stay low.
    The flipside is that those who sold the price hedges now have to make good. At the top of the list are the same Wall Street banks that financed the biggest energy boom in U.S. history, including JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co.
    The systemic risk hasn't been as bad as in the mortgage crisis. Insurance companies like AIG have not been foolishly involved here.

    But explains why investment banks have been laying off or getting rid of their commodities trading divisions and may be partly why financials have been tanking in this sell off.

    What are all the investment banks going to do for their profits when most of their proprietary trading opportunities close one by one? Do banking?
  • catch22catch22
    edited February 2016
    @vkt
    OMG.........nah, they can't be "just" banks. They would get run out of town by the credit unions, eh? They've (the banks) got the need, the fix and the backing.
    The Pusher Man (The Fed) has their backside.
    Hell, the banks can still get .5% on cash reserves and "excess" cash reserves, as of December, with the rate hike.
    The financial market place is so perverted.
    Regards,
    Catch
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