The Case for Junk Bonds

[arbitragr]

 

http://www.washingtonpost.com/wp-dyn/content/article/2009/03/10/AR2009031000895.html

 

.... The turning point came in December. That's when the government rescued Chrysler, General Motors and GMAC, all leading issuers of high-yield bonds. "That seemed to lift the animal spirits" of investors, says Sabur Moini, a 15-year junk-bond veteran who manages Payden High Income fund. Fresh money rediscovered junk funds, and low-quality bonds rallied. Between December 12 and January 28, SPDR Barclays Capital High Yield Bond (symbol JNK), an exchange-traded fund that tracks the junk-bond market, appreciated 22%.

[arbitragr]

 

Junk bonds face quieter ride after 40% surge:

http://www.marketwatch.com/story/junk-bonds-face-quieter-ride-after-40-surge-2009-08-28

 

Speculative-grade debt, also known as junk bonds, has returned almost 40% so far this year, the most since at least 1987, according to an index compiled by Merrill Lynch. And while high-yield debt still offers attractive yields, that advantage over stocks may be fading. ... "From where we are now, the opportunity in stocks is likely to be better than in high-yield bonds, which had a phenomenal run," Ablin said. "We're looking for equities to take the hand off." ... Still, analysts warn that as a rising tide might have lifted all boats, it's become much more important to research the finances of individual companies instead of making a broad allocation into the sector and hope for the best. Debt defaults are still expected to rise in the coming year.

[Cigarbutt]

This is an old thread but relevant as patience is a potential requirement.

In retrospect, 2009 was a great time to be in stocks but since then, along with some minor bumps, junk bonds have fared very well and continue to reach new heights.

When climbing a high mountain, gradual ascension can decrease the risk of cerebral malfunction due to lower levels of oxygen but confusion can happen. The last elevation segment is always the most tricky.

And now, some feel that the sector has become a "safe haven" above a sea of potential volatility.

 

https://www.marketwatch.com/story/heres-how-junk-bonds-became-a-quiet-haven-for-investors-says-baml-2018-09-10

https://www.hvst.com/organization/thornburg-investment-management/posts/beware-high-yields-siren-song-X7QTZzx5?position=1

http://www.leveragedloan.com/covenant-lite-share-us-leveraged-loan-market-hits-record-79/

 

Maybe, this is a story with no end but I would tend to bet in the other direction.

Good ole Ben Graham used to say that, in some instances, the only effective resistance is to look away.

In Homer's Odyssey, in order to escape the funest appeal of sirens, Ulysses "resisted" by having his ship's crew tie him up, and members of the crew were ordered to block their own ears with wax to prevent themselves from hearing the song.

 

 

[Nelson]

For me, investing in junk bonds is a pretty simple exercise. You buy when the spread over better bonds hits a high and sell when it hits a low. These days the spread is the lowest it's been in over a decade. Thus, I'm out.

 

The St. Louis Fed website has a nice chart that tracks the spread for you. https://fred.stlouisfed.org/series/BAMLH0A0HYM2