No sooner did I post my analysis of the high yield market than
this article came up in the WSJ. I worked on and off for a week on my
piece..time to get things done and posted more promptly
Institutions
Take Advantage of a Recent Slide in High-Yield Bonds' Price Triggered by Small
Investors' Selling
Large institutions are snapping up U.S. junk
bonds, taking advantage of a price slide triggered by an exodus of individual
investors.
Many big money managers say they remain
bullish on these risky corporate bonds despite concerns that the market is
overheated and worries that geopolitical unrest could fuel a rush to safer
assets.
Their interest stands in contrast to a wave of selling by retail
investors, who
sucked almost $13 billion out of junk-bond mutual funds and exchange-traded
funds in the four weeks ended Aug. 6.
Analysts said upheaval in Ukraine, Iraq and Israel
unsettled some investors, and concerns that prices were already too high drove
some smaller investors to sell. They worried that the multiyear record-breaking
run of junk bonds might be near an end.
That presented a buying opportunity for larger
investors, who say the $1.6
trillion U.S. junk-bond market remains healthy and note that many bonds are now
cheaper than before.
Gershon Distenfeld, who oversees $35 billion
in junk bonds as director of high yield forAllianceBernstein ...
"Investors who panic in these selloffs—it's the wrong thing to
do," Mr. Distenfeld said.
While there are no hard data to show hedge
funds and large asset managers moving into junk bonds, a rise in prices last
week suggested some big firms were buying, analysts said. U.S. high-yield bonds
returned 1.02% this month through Friday, according to Barclays PLC, pushing
year-to-date returns to 5.112% as of Friday from 3.498% as of Aug. 1
"There really is no good reason why high
yield sold off in the first place" this summer, said David Mazza, head of research in the ETF unit
at State Street Global Advisors, which oversees $413 billion in assets.
"Nothing changed in the outlook for defaults."...
Standard & Poor's predicts the U.S.
corporate high-yield default rate will rise to 2.7% by June 2015 from 1.5% this
past June. Those rates are well below the average of 4.4% over three decades...
There were signs last week that some small
investors were rethinking their retreat. U.S. junk-bond mutual and
exchange-traded funds took in $680 million in the week ended Aug. 13, ending
four weeks of outflows. The
streak included a $7.1 billion weekly decline that was the biggest ever, fund
tracker Lipper said.
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