Here is a chart which shows the credit spread of high yield bonds vs. the default rate of high yield bonds since 1997.
The ugly junk bonds of old have now become the more palatable high yield bonds of today.
Regarding Nominal GDP Growth, the yield of the bonds will likely be greater than that too and will more than likely be greater that the 4% assumption quoted in the article.
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We are not in that moment yet, but as one market participant pointed out: today's 60bp rise in the yield of Italian bonds is a "big move in a massive market".
Since the end of July the average yield spread of junk bonds over Treasurys has widened from 3.7% to 6.6%, suggesting that Wall Street thinks much worse is in store for weak borrowers.
In 17 out of 19 cases high yield bonds produced positive returns despite negative returns on Treasures and in 19 out of 19 cases high yield bonds outperformed Treasuries.
Yield spreads of junk bonds over Treasuries have narrowed a touch, though they remain wide.
In addition to single strategy hedge funds that may invest in Japanese equities or high-yield bonds of technology stocks, there are even funds whose sole purpose is to invest in other funds.
On the other hand, Matt is avoiding a smaller segment of the high yield market consisting of riskier CCC bonds with spreads below their historical levels.
Even when the details of credit default swaps and high yield bonds lead to fits of sudden-onset narcolepsy!
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It isn't enough to compare the spread to its average, Mr. Fridson says, because the average doesn't reflect the current level of default risk, the strength of the economy, the yield on government bonds or the availability of credit.
Additionally, many mutual funds have been forced to sell their high quality, high yield bonds because of redemptions.
Given the high price and lower yield, many of these bonds are becoming callable at prices below their current levels.
The conclusion seems to be that investors are not being paid well at present to take the incremental risk of high yield bonds over Treasuries.
To put these figures in context, second-lien loans have even printed wide of high-yield bonds.
One way to look at this is to analyze the state of high-yield bonds.
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Informal lenders will henceforth need to be registered, more private capital will be encouraged and the issuance of high-yield bonds approved.
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As default risk is the primary driver of high-yield corporate bond prices, as opposed to interest rate direction, when the economy expands, the risk of high-yield corporate bonds defaulting is reduced and this is reflected in lower volatility.
The two-year bonds carry a yield of 2.25%, and the U.K.-based lender arranged the deal.
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Still, only a small amount of Asian high-yield bonds is available to U.S. buyers.
In May, MIT offered those AAA 100-year bonds with a yield of 5.6%, which were quickly snapped up.
And its treasury bonds yield in excess of 10% after adjusting for inflation.
In the high-yield bit of the market, American bonds returned -5.2% in the third quarter and European bonds -10%.
The lender sold three-year bonds with a yield of around 2.75%, according to a term sheet seen by The Wall Street Journal.
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Equity and high-yield bonds respond to some of the same macroeconomic factors.
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My cost of carry on high yield bonds runs at 70 basis points for a net yield to maturity for me near 6 percent.
The outflow from high-yield bonds during the week of August 3rd was the highest since the brief stockmarket plunge of last October, says Mr Fridson.
The credit spread simply measures how much more high yield bonds yield than treasuries of similar maturities (read more on the basics of credit spreads here).
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