The Securities Litigation Expert Blog

Buyers Panic Continues in High Yield

Posted by Jack Duval

May 14, 2013 4:19:00 AM

The Barclays US Corporate High Yield Index has now closed at a yield of 4.97%, the lowest in the index's 30-year history, Reuters reports.  (TR)  For the week ending May 8, $789M of new money flowed into high yield.  Here are some quotes that should scare everyone:

... There was "indiscriminate" buying in the high-yield primary market... CCC+ rated payment-in-kind toggle offerings (are getting done)... XM Radio launched a single tranche US$500M seven-year non-call three senior note offering partly intended for share repurchases... there's nothing you can buy in the secondary market right now, it's all bid... high-yield bonds have become as sensitive to rising rates as high-grade bonds, because there is no spread cushion left.

When PIK bonds are back you know we have entered the land of the lotus eaters.  I'm afraid many investors needing income will be taking large haircuts when Odysseus comes to drag them away.
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Topics: junk bonds, Senior Investors, investments, PIK bonds, yield bubble, fixed income

The Yield Bubble - China Edition

Posted by Jack Duval

Mar 29, 2013 4:05:53 AM

Yields on Chinese junk bonds have fallen by 30-40 percent over the past two years, as the hunt for yield goes global.  (NYT)  If "Chinese High Yield Debt" doesn't put the fear of God in you, read this:

Chinese junk bonds also have a unique structure, which could leave investors vulnerable.  Mainland China’s domestic bond market remains largely off limits to foreign buyers. So most investors buy offshore Chinese bonds, which are issued through holding companies headquartered in places like the Cayman Islands.  The bonds tend not to be backed by the actual businesses and underlying assets in mainland China. That means foreign bondholders may have little legal recourse if a company defaults on its debt, especially if local banks or other Chinese creditors make claims.

Investment advisors should be checking any high yield funds they have for China exposure, as this will surely end badly.
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Topics: investments, high yield, yield bubble, fixed income, China, debt

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