High Yield Bonds in a Low Rate World June 2012
|
|
- Marcus Conley
- 8 years ago
- Views:
Transcription
1 Very low US Treasury rates are a dominant feature of today s financial markets. Their effects are widespread across those markets and throughout the global economy. This paper examines the impact that these low rates are having on US high yield bonds in terms of potential returns, volatility, and correlations with other asset classes. These topics are of interest to us, as managers of both long-only and absolute return high yield bond portfolios. It is also of interest to consultants and institutional investors who seek to allocate funds to the high yield asset class such that they contribute to the overall portfolio s total returns and Sharpe ratios. We reach three important conclusions: While upside becomes limited when the Bank of America Merrill Lynch Master II Index approaches a price of 104, yields, spreads, and returns are likely to remain attractive until Treasury rates rise meaningfully or the economy stumbles. In the low rate environment, the Treasury component of high yield returns is less significant, and the equity component more significant, so high yield bonds are more correlated to equities and negatively correlated to Treasuries. As a result, the efficient frontier between high yield and Treasury bonds has shifted considerably and favorably for fund managers seeking to enhance returns and/or reduce risk in fixed income portfolios. With risk-free rates at historic lows, it is not surprising that investors can enhance returns by incorporating a substantial allocation of well-managed high yield bonds into their overall portfolios. We demonstrate that this strategy reduces volatility, too, especially in the current low rate environment. Economic Backdrop The US economy is in its third year of recovery from the dramatic recession that began with the housing crisis in 2007 and encompassed the collapses of Bear Stearns, Lehman Brothers, GM, and Chrysler, among many. This has been a fits and starts recovery, fueled by fiscal stimulus and generously accommodative Fed policies. Fortunately, consumers continue to spend despite stretched budgets, stubbornly high unemployment, and the mori- bund housing market. Businesses, on the other hand, are reluctant to invest and create jobs because they have little confidence in the expansion and because the ambiguous political and regulatory environment creates unforeseeable risks. Beyond our borders, continuing stress in Europe, slowing growth in China, and heightened tensions in the Middle East are contributing to uncertainty for businesses and choppy markets for investors. 6% 4% 2% -2% -4% -6% Trailing 4 Quarters Real GDP Growth Source: U.S. Bureau of Economic Analysis, Bloomberg After shrinking by 3.7% from July 2008 to December 2009, Real GDP rebounded to 3.1% growth in That was a healthy rate of expansion for the early part of the recovery, and economists expected some acceleration in Instead, growth slowed almost to a standstill in the first quarter and then rebounded slowly, such that it amounted to only 1.6% for the full year. For the second year in a row, job creation was anemic and the housing market failed to recover even modestly, despite the very low interest rates. Also, oil prices rose to more than $100 a barrel, and most industrial commodities followed suit. Despite these headwinds, economists are projecting slow growth to continue in 2012, within a range of 2 3%, and mostly in the second half. The energy, technology, media, and consumer sectors are likely to drive much of this expansion. Only a few economists are expecting a downturn during the coming 18 months, but growth is not accelerating and the outlook for employment remains discouraging. Particularly because of high unemployment, US policymakers and central bankers are highly motivated to stimulate the economy. 1
2 Low Treasury Rates Chairman Bernanke recently reaffirmed the Fed s intention to hold interest rates at low levels until late 2014, hoping to bolster confidence and promote investment in risk assets. The second of its quantitative easing programs has been extended through the end of 2013, and many market participants are anticipating a QE III if the economy slows further. Some economists disagree with this easy money approach. Many fear it will fuel inflation. Others argue that low rates are not an adequate remedy when business confidence is low, likening them to pushing on a string. Certainly, savers and fixed income investors are struggling to maintain current income. Conversely, borrowers benefit. They are able to refinance to lock in low rates, thereby improving creditworthiness and freeing capital for more productive uses. Also, overextended borrowers are more likely to avoid default when capital is available and borrowing rates are low. Equity investors benefit, too. Stock values increase as the risk free rate declines, and lower hurdle rates will encourage business investment and growth when confidence returns. These benefits are part of the reason the stock market has rallied impressively since the S&P 500 hit a low of 667 in March The index more than doubled in the following 26 months, to 1371 in May 2011, fueled by rising profits and investor expectations that the Fed s QE program would spur growth. The rally faltered during the summer of 2011, with the S&P 500 declining to 1075 because of global economic and political tensions and fears of slowing growth in the US, Europe, and China. The expiration of the first phase of quantitative easing contributed to that correction, too. The announcement of a large, similar program in Europe, the Long Term Refinancing Operation, helped to restore confidence, and the rally resumed in October, with a 300 point gain in the S&P 500 through the end of March. Unfortunately, the index has fallen by almost 150 points since that peak, as renewed worries about Europe are weighing heavily on investor expectations. This volatility is likely to continue until global economic and political conditions improve markedly. Yields Over Time Cumulative Returns 25% % High Grade S&P 500 Treasuries 1 5% Treasuries S&P 500 Dividend Yield Wilshire 5000 Inflation 0 Source: Bank of America Merrill Lynch Source: Bank of America Merrill Lynch 2
3 Market High yield bonds were among the worst performing fixed income asset classes during the financial crisis, with a loss of almost one-third of their total market value between October 2007 and November Then, consistent with the historical pattern, they led equities out of the downturn. Uncharacteristically, they continue to have a performance edge three years into the recovery. To a large degree that is because they have directly benefitted from the Fed-engineered decline in underlying risk-free rates. Returns have come in three forms: reliable coupon income, rising bond prices due to falling rates and tightening spreads, and call and tender premiums as issuers refinance at lower rates. Meanwhile, equities have struggled with weak and uneven growth and numerous global concerns. HY Returns and GDP Growth to lock in historically low borrowing rates and extend maturities. When the primary market reopened after the financial crisis, only better quality high yield issuers were able to access this market. But recently, some low-rated companies have issued bonds, including a small proportion of risky LBO and dividend deals. Even so, the overall quality of the issuance thus far in this cycle has been considerably better than in prior cycles Market Ratings Composition % BB % B % CCC Average Quarterly Returns 3.5% % 2. Source: Bank of America Merrill Lynch Default Outlook 1.5% % 0. Source: Bank of America Merrill Lynch,U.S. Bureau of Economic Analysis < 0 0-2% 2-4% 4-6% > 6% Annualized Real GDP Growth Historically, the best environment for high yield investors has been slow to moderate economic growth that dampens defaults but does not trigger rising interest rates. We are enjoying such an environment presently. It is not surprising that capital has been flowing into this market at a record pace for most of the past two years, especially considering the very low yields offered by most fixed income alternatives. Supply has easily kept up with that demand, as issuers are anxious Default rates are low and are likely to remain so for the foreseeable future. The market was cleansed of most troubled issuers during 2008 and 2009, when 19% of the US high yield market defaulted or restructured through coercive exchanges. Those that remain, understandably leery of too much debt, have been reducing leverage and refinancing to cut interest expense and extend maturities. As a result, the proportion of the market rated CCC, the group most likely to default, has declined by almost half since its peak during the crisis. Most issuers have been able to push their maturity walls out to 2014 and beyond, thereby delaying a common default catalyst. Also, as previously mentioned, overleveraged borrowers are better able to avoid default when capital is available and rates are low. And even slow GDP growth provides some tailwind for those issuers that need to grow into their capital structures to service their debt. For all those 3
4 reasons, we expect defaults to remain in a range of 2 3% during the coming months, unless oil prices collapse or the economy goes into recession. That compares favorably to the 4.2% long term average. 6% Monthly Default Rate Market strategists generally discount the presence of a yield floor, pointing to the very attractive yield advantage over alternative fixed income securities and the historical record of declining yields. There is a better argument for a price ceiling, since convexity turns negative as prices rise above par and call constraints come into play. We believe the price ceiling is more impenetrable than the yield floor. In either case, gains beyond another three or four points would push prices to historically unsustainable highs, and yields below historic lows. Average Price 5% 110 4% 3% Monthly Default Rate Price Ceiling? 2% Long Term Average Default Rate % Source: Bank of America Merrill Lynch, JP Morgan Chase Source: Bank of America Merrill Lynch Returns Despite the vacillating recovery, high yield investors have enjoyed very good returns since the November 2008 bottom, averaging 24.4% per annum. CCC-rated issues averaged 33.8%. The mean price of the bonds in the Bank of America Merrill Lynch Master Index II reached 102 in February, and has since retreated to about 99. The yield bottomed at just below 7%, and has since risen to almost 8%. The price rarely goes above 103, and the all-time high, 104, has been touched on only a handful of occasions and was never sustained for more than a month or so. The yield is now 125 basis points above its all-time low, 6.75% reached in May 2011, after having tightened to within 25 basis points during the February peaks. With underlying rates near historic lows, we believe high yield bonds will gravitate toward these record yields and prices when markets are bullish. On the positive side, spreads remain munificent, more than compensating investors for the risks inherent in high yield investing in a favorable default environment. The average option-adjusted spread is above 700 basis points. That is about 150 basis points above the historic median and very generous considering the broadly-held, benign outlook for default rates. The excess spread is partly explained by the myriad macro risks to the global economy and financial markets, and partly by investor anticipation that underlying Treasury rates will rise at some point during the life of the existing bonds. Average Yields and Spreads 25% 2 15% 1 5% Source: Bank of America Merrill Lynch 4 Yield to Worst Optionadjusted Spread Median Spread
5 Effects of Low Treasury Yields on Bond Returns and Correlations For the next year or two, Treasury rates are not likely to rise much from their very low current levels, and are even less likely to decline. The yield of a corporate bond can be viewed as a combination of the underlying risk-free rate plus the spread over Treasuries. The risk-free portion is directly correlated to similar maturity Treasuries, while the spread is a reflection of the creditworthiness of the issuer, issue-specific characteristics, and expected outcomes. The spread is largely correlated with the issuer s equity. Spreads will be the primary determinant of high yield bond prices during this period of stable, low Treasury rates. A worsening economy would lead to wider spreads and lower bond prices while an improving domestic economy, positive resolution of the European crisis, or re-accelerating growth in China could induce spread tightening and resultant capital gains, tempered by the aforementioned price ceiling. When underlying rates are low, the spread is the largest component of high yield returns, and Treasury yields are a relatively small part. That is the case today, as the Treasury accounts for just under 2 of the total yield of the high yield index, and the spread 8. It follows that returns should be more equity-like; that is, more volatile, more correlated to equity indices, and less correlated to Treasuries. If so, these differences should be incorporated into allocation decisions and the portfolio management process. To test this theory, we calculated the returns and volatility of various asset classes during the past 20 to 25 years, and compared those to the period since November 2007, when the 7 to 10 year Treasury index has yielded less than 4%. We excluded the eight months between September 2008 and April 2009, when volatility spiked well-beyond historic peaks as the markets collapsed and rebounded, because we believe those outlying returns are unlikely to recur in the foreseeable future. The results are shown in the table below. Nearly all of the asset classes enjoyed above-average returns as rates came down and markets recuperated. But none came close to the performance of high yield bonds, which were buoyed by the falling rates and by narrowing spreads as investors regained confidence in the economy and the financial system. We expected high yield volatility to increase materially, but that has not been the case. It is only modestly higher than it was before rates came down. That demonstrates the stabilizing effect of the current income stream and, to a lesser extent, the counterbalance from the small Treasury component of its total returns. We find it noteworthy that the Treasury and equity volatilities are the same in both interest rate environments. Asset Class Returns & Volatility, Present* 7-10 Year Treasuries 7-10 Year High Grade S&P 500 Wilshire 5000 Average Annual Return 8.74% 7.71% 7.29% 8.44% 7.26% Annualized Volatility 8.56% 6.21% 6.32% 15.69% 15.96% Sharpe Ratio Low Yield Period, November Present** Average Annual Return 13.19% 8.79% % 6.43% Annualized Volatility 8.74% 6.12% 5.54% 15.79% 16.24% Sharpe Ratio *Monthly data from January 1, May 31, 2012, except High Grade ( ) ** Excludes 8 months of severe volatility from September April 2009, and 2012 data is as of May 31 Source: Bank of America Merrill Lynch, Bloomberg 5
6 We also calculated and compared the correlations among the asset classes during the same time periods, with the results shown in the table below. Here, we see the results we expect during the low Treasury rate period: higher correlations with equities, and lower with Treasuries. In the low rate environment, the correlation between high yield and Treasury returns is decidedly negative, at -46%. That is partly because the underlying risk-free rate has fallen to a small portion of the index s yield. More important, the index s correlation with the S&P 500 increased from 58% to 78% as the S&P 500 s correlation with Treasuries became considerably more negative. In fact, Treasury correlations with all of the asset classes fell precipitously. The depth of the negative correlation reflects the risk-on, risk-off nature of the markets during the past year or so, when equities and Treasuries have tended to move in opposite directions. Asset Class Correlations, Present* Year Treasuries 7-10 Year Treasuries Year High Grade *Monthly returns from January 1, May 31, 2012, except High Grade ( ) and VIX ( ) ** Excludes 8 months of severe volatility from September April 2009, and 2012 data is as of May 31 Source: Bank of America Merrill Lynch, Bloomberg 7-10 Year High Grade S&P 500 Wilshire 5000 S&P Wilshire VIX vs. HY Spreads Low Yield Period, November Present** 7-10 Year Treasuries Year High Grade S&P Wilshire VIX vs HY Spreads 0.58 We also examined historical correlations, and compared them to Treasury yields as those declined over time. These relationships are displayed in the charts on the following page. The first shows the correlation between the high yield and Treasury indices since 1987, tracked against Treasury yields. While the correlation chart is noisy, there does appear to be a downward trend, particularly during the current period of low underlying Treasury rates. The second chart shows the correlation between the high yield index and the S&P 500, tracked against Treasury yields. This correlation chart is similarly noisy, but there is a discernible upward trend as rates have come down during the past 12 years. 6
7 / Treasury Correlations & Treasury Yields / S&P Correlations & Treasury Yields % % % 6% 4% 2% HY/Treasury 1 Year Correlation Treasury Yield (RHS) % 6% 4% 2% HY/S&P 1 Year Correlation Treasury Yield (RHS) Source: Bank of America Merrill Lynch, Bloomberg Source: Bank of America Merrill Lynch, Bloomberg Efficient Frontier Implications for Allocations We expect that this negative correlation between high yield and Treasury indices is shifting the efficient frontier for portfolios comprised of those securities toward higher potential returns and lower overall volatility, to a small degree offset by the larger volatility of the high yield index alone. To discern the overall effect of these influences, we ran a Monte Carlo simulation to develop forward looking efficient frontiers for the combination of high yield and Treasuries using the correlation coefficient and standard deviations prevailing under each of the two rate environments. We assumed the instruments would return their present yields, less expected default losses for high yield. We also computed corresponding Sharpe Ratios Year Treasuries Current Yield to Worst 7.85% 1.55% Expected Losses - 3% Default Rate 1.8 Annual Return 6.05% 1.55% Historic Volatility & Correlation Annualized Volatility 8.56% 6.21% Correlation Recent Volatility & Correlation Efficient Frontier Assumptions Annualized Volatility 8.74% 6.12% Correlation
8 Treasury & Efficient Frontiers Sharpe Ratios 7% 1.0 Total Return 6% 5% 4% 10 Recent Correlation & Volatility Ratios Sharpe Ratio Recent Correlation & Volatility Ratios 3% 2% 1% 10 Treasuries Historic Correlation & Volatility Ratios Historic Correlation & Equity Ratios Volatility - Standard Deviation of Total Returns Portfolio Allocation The case for combining high yield and Treasury securities is significantly more compelling at current levels of volatility and correlation, since the gains from diversification among these two asset classes are considerably more pronounced. As the charts above demonstrate, the optimum Sharpe Ratio is significantly higher, and it is achieved with a smaller allocation to high yield bonds. By allocating 38% of a Treasury portfolio into high yield, an investor can reduce overall volatility by 4, and double returns to 3.25% from the 1.55% yield of the Treasuries alone. Beyond that, the investor can maximize the portfolio Sharpe Ratio by increasing to a 51% allocation, and can continue to increase returns to more than triple that of Treasuries alone, while still holding volatility below the Treasury index, by putting 76% into high yield. Using the historical volatility and correlation metrics, similar returns are possible, but with significantly more volatility and commensurately lower Sharpe Ratios. We recognize that these ideal high yield weightings are well beyond most investors guidelines, which typically allow only 5% to 2 allocations to this asset class. While the gains from diversification are constrained under those limitations, even at those levels the benefits are more advantageous in the low rate environment. As shown below, moving up from a 5% allocation improves returns, while reducing volatility and enhancing the Sharpe Ratio. Efficient Frontier Inflection Points Historic Volatility & Correlation Allocation Return Volatility Sharpe Ratio Recent Volatility & Correlation Allocation Return Volatility 10 Treasuries 1.55% 6.21% % 6.12% 0.25 Minimum Volatility 35% 3.12% 5.01% % 3.25% Maximum Sharpe Ratio Maximum Return at Treasury Volatility Sharpe Ratio 68% 4.62% 6.13% % 3.85% 4.06% % 4.65% % 4.96% 6.11% % 8.56% % 8.73% 0.69 Typical Allocations 5% 5% 1.78% 5.92% % 1.78% 5.42% % 5.64% % % 5.24% % 4.37%
9 Implications for Portfolio Managers Low Treasury rates are likely to persist for another year or two, and longer if the economy continues to struggle to grow beyond the current slow rate. This is a positive environment for high yield bonds, especially because defaults are likely to remain suppressed. While the outlook for rates and the economy remains benign, it makes sense to reach down the credit quality spectrum to enhance yields by purchasing well-researched, improving credits that offer attractive value relative to their risk. When conditions deteriorate, the market s excess spread should cushion initial losses and provide a window to reposition the portfolio. If the primary concern is rising rates, we would shorten duration and move toward the middle of the ratings curve, to reduce exposures to rising rates inherent in BB-rated bonds and to equity volatility inherent in CCC-rated bonds. If the concern is an economic downturn and rising defaults, we would move up the quality scale to lessen exposure to downgrade and default risk, and we would shorten duration to reduce overall portfolio volatility. That said, our investment process is primarily focused on bottom-up fundamental analysis designed to identify securities which offer positive alpha. Alpha is always in style for high yield investors, but in this environment, where overall market returns are somewhat limited, alpha is one of the two best ways to enhance returns and outperform the index. The other way is to avoid defaults and downgrades. Both have the added benefits of reducing volatility and lowering correlations with equities and Treasuries. Conclusion Chairman Bernanke s statements indicate that the Fed intends to maintain low rates for at least another two years. We conclude that these low baseline rates will have important repercussions for high yield investors, beyond the obvious impacts on yields for these bonds and for fixed income alternatives. In the current low rate environment, high yield investors must contend with limited upside, higher correlations with equities, and negative correlations with Treasuries. At the same time, they can benefit from generous spreads that more than compensate for likely default losses. We have adjusted our management approach to incorporate these conditions, and we suggest that large fund managers re-evaluate their high yield allocations in light of the changes in efficient frontiers that we present in this paper. To wit, our analysis indicates that the gains from diversifying into high yield are more pronounced in this low rate environment. We recommend that investors capitalize on this opportunity to improve returns and reduce volatility by increasing their allocations into well-managed high yield bonds. Mike Brown Co-Portfolio Manager Robert Paine Co-Portfolio Manager 9
10 This material is for information only and does not constitute an offer or recommendation to buy or sell any investment, or subscribe to any investment management or advisory service. Investors must meet certain eligibility criteria in order to purchase certain funds. It is not, under any circumstances, intended for distribution to the general public. This report is issued and approved by Advent Capital Management, LLC and Advent Capital Management UK Limited (Advent Capital), which is Authorised and Regulated by the Financial Services Authority. The Funds that may be referred to in this document are unregulated collective investment schemes for the purposes of Section 238 of the Financial Services and Markets Act Accordingly, this document may only be issued in the United Kingdom to persons to whom unregulated collective investment schemes are permitted to be promoted by virtue of Section 238 of the FSMA and COBS 4.12 of the new Conduct of Business Sourcebook. No part of this document may be reproduced in any manner without the written permission of Advent Capital. We do not represent that this information, including any third party information, is accurate or complete and it should not be relied upon as such. Opinions expressed herein reflect the opinion of Advent Capital and are subject to change without notice. Past performance is not a guarantee of future results. 10
High Yield Bonds in a Rising Rate Environment August 2014
This paper examines the impact rising rates are likely to have on high yield bond performance. We conclude that while a rising rate environment would detract from high yield returns, historically returns
More informationAn Alternative Way to Diversify an Income Strategy
Senior Secured Loans An Alternative Way to Diversify an Income Strategy Alternative Thinking Series There is no shortage of uncertainty and risk facing today s investor. From high unemployment and depressed
More informationHigh Yield Fixed Income Credit Outlook
High Yield Fixed Income Credit Outlook Brendan White, CFA Portfolio Manager, Touchstone High Yield Fund Fort Washington Investment Advisors, Inc. September 28, 2011 The opinions expressed are current as
More informationOpportunities in credit higher quality high-yield bonds
Highlights > > Default rates below the long-term average > > Valuations wide of historical average in BB and B rated credit > > Despite sluggish economy, high yield can still perform well > > High yield
More informationRisks and Rewards in High Yield Bonds
Risks and Rewards in High Yield Bonds Peter R. Duffy, CFA, Partner, Senior Portfolio Manager Navy Yard Corporate Center, Three Crescent Drive, Suite 400, Philadelphia, PA 19112 www.penncapital.com 1 What
More informationThe recent volatility of high-yield bonds: Spreads widen though fundamentals stay strong
Investment Insights The recent volatility of high-yield bonds: Spreads widen though fundamentals stay strong Kevin Lorenz, CFA, Managing Director, Lead Portfolio Manager of TIAA-CREF's High-Yield Fund
More information2015 Mid-Year Market Review
2015 Mid-Year Market Review Cedar Hill Associates, LLC www.cedhill.com 6111 North River Road, Suite 1100, Rosemont, Illinois 60018 Phone: 312/445-2900 An Affiliate of MB Financial Bank 2015 Major Investment
More informationBERYL Credit Pulse on High Yield Corporates
BERYL Credit Pulse on High Yield Corporates This paper will summarize Beryl Consulting 2010 outlook and hedge fund portfolio construction for the high yield corporate sector in light of the events of the
More informationThe case for high yield
The case for high yield Jennifer Ponce de Leon, Vice President, Senior Sector Leader Wendy Price, Director, Institutional Product Management We believe high yield is a compelling relative investment opportunity
More informationThe Argument for Corporate Debt December 2008
The Argument for Corporate Debt December 2008 This past quarter the US economy has experienced what appears to be the crescendo of a credit crisis that has been building for well over a year. The causes
More informationBond Market Insights July 15, 2015
Bond Market Insights July 15, 2015 by Jerry Wiesner, CFA and Stephen Frahm General Bond Market Treasury yields rose during the second quarter as prices fell. The yield curve steepened, as long yields rose
More informationSpectrum Insights. Time to float. Why invest in corporate bonds? - Value
Spectrum Insights Damien Wood, Principal JUNE 25, 2015 Time to float Investing in floating rate bonds as opposed to fixed rate bonds helps protect bond investors from price slumps. Spectrum expects that
More informationEffective downside risk management
Effective downside risk management Aymeric Forest, Fund Manager, Multi-Asset Investments November 2012 Since 2008, the desire to avoid significant portfolio losses has, more than ever, been at the front
More informationFixed Income: The Hidden Risk of Indexing
MANNING & NAPIER ADVISORS, INC. Fixed Income: The Hidden Risk of Indexing Unless otherwise noted, all figures are based in USD. Fixed income markets in the U.S. are vast. At roughly twice the size of domestic
More informationFixed Income Liquidity in a Rising Rate Environment
Fixed Income Liquidity in a Rising Rate Environment 2 Executive Summary Ò Fixed income market liquidity has declined, causing greater concern about prospective liquidity in a potential broad market sell-off
More informationDocumeent title on one or two. high-yield bonds. Executive summary. W Price (per $100 par) W. The diversification merits of high-yield bonds
April 01 TIAA-CREF Asset Management Documeent title on one or two The lines enduring Gustan case Book for pt high-yield bonds TIAA-CREF High-Yield Strategy Kevin Lorenz, CFA Managing Director Co-portfolio
More informationPRESENT DISCOUNTED VALUE
THE BOND MARKET Bond a fixed (nominal) income asset which has a: -face value (stated value of the bond) - coupon interest rate (stated interest rate) - maturity date (length of time for fixed income payments)
More informationWhy Consider Bank Loan Investing?
Why Consider Bank Loan Investing? September 2012 Bank loans continue to increase in popularity among a variety of investors in search of higher yield potential than other types of bonds, with lower relative
More informationThe Search for Yield Continues: A Re-introduction to Bank Loans
INSIGHTS The Search for Yield Continues: A Re-introduction to Bank Loans 203.621.1700 2013, Rocaton Investment Advisors, LLC Executive Summary With the Federal Reserve pledging to stick to its zero interest-rate
More informationHow To Invest In High Yield Bonds
Investment Perspectives For high-yield bonds, market volatility can bring new opportunities Kevin Lorenz and Jean Lin, portfolio managers for TIAA-CREF High-Yield Fund Article Highlights: The decline in
More informationKDP ASSET MANAGEMENT, INC.
ASSET MANAGEMENT, INC. High Yield Bond and Senior Secured Bank Loan Outlook March 2016 Asset Management, Inc. 24 Elm Street Montpelier, Vermont 802.223.0440 HighYield@kdpam.com The Case for High Yield
More informationTaxable Fixed Income Outlook: Waiting for Those Rising Rates
Taxable Fixed Income Outlook: Waiting for Those Rising Rates Market Commentary Fourth quarter 2014 MOST INVESTORS UNDERSTAND THAT INTEREST RATES ARE UNPREDICTABLE. But we suspect few believed rates could
More informationMarket Bulletin. November 7, 2014. U.S. High Yield: A bubble set to burst?
November 7, 2014 U.S. High Yield: A bubble set to burst? Grace Tam, CFA Vide President Global Market Strategist J.P. Morgan Funds Katy Fang Research Analyst J.P. Morgan Funds Tai Hui Managing Director
More informationCALVERT UNCONSTRAINED BOND FUND A More Expansive Approach to Fixed-Income Investing
CALVERT UNCONSTRAINED BOND FUND A More Expansive Approach to Fixed-Income Investing A Challenging Environment for Investors MOVING BEYOND TRADITIONAL FIXED-INCOME INVESTING ALONE For many advisors and
More informationStrategy Monthly. Unfixed Income. May 26, 2015
Strategy Monthly Unfixed Income The yield on traditional fixed income this year has been anything but fixed. From a low of. % on the last day of January, the yield to maturity on the ten year Treasury
More informationANY GAS LEFT IN THE HIGH-YIELD MUNICIPAL TANK?
May 9, 2016 ANY GAS LEFT IN THE HIGH-YIELD MUNICIPAL TANK? A favorable credit environment and technical factors have contributed to strong high-yield municipal performance. We see limited room for further
More informationto Wealth Management resources of one of the world s largest financial services firms. The Caribbean Group
A Defined Approach to Wealth Management Giving UWI access to the combined resources of one of the world s largest financial services firms. The Caribbean Group The information in this presentation is intended
More information2013 global economic outlook: Are promising growth trends sustainable? Timothy Hopper, Ph.D., Chief Economist, TIAA-CREF January 24, 2013
2013 global economic outlook: Are promising growth trends sustainable? Timothy Hopper, Ph.D., Chief Economist, TIAA-CREF January 24, 2013 U.S. stock market performance in 2012 * +12.59% total return +6.35%
More informationEnergizing High Yield Bond Investors: Finding Opportunities Amid Shifting Market Conditions
Energizing High Yield Bond Investors: Finding Opportunities Amid Shifting Market Conditions Energizing High Yield Bond Investors: Finding Opportunities Amid Shifting Market Conditions Contents Executive
More informationInvestment insight. Fixed income the what, when, where, why and how TABLE 1: DIFFERENT TYPES OF FIXED INCOME SECURITIES. What is fixed income?
Fixed income investments make up a large proportion of the investment universe and can form a significant part of a diversified portfolio but investors are often much less familiar with how fixed income
More informationFixed Income Review. Second Quarter 2015
Second Quarter 2015 As of June 30, 2015 Total Return Performance Calendar Year Performance Index MTD QTD YTD 2014 2013 2012 Barclays US Aggregate -1.1% -1.7% -0.1% 6.0% -2.0% 4.2% BAML US Agency Index
More informationNPH Fixed Income Research Update. Bob Downing, CFA. NPH Senior Investment & Due Diligence Analyst
White Paper: NPH Fixed Income Research Update Authored By: Bob Downing, CFA NPH Senior Investment & Due Diligence Analyst National Planning Holdings, Inc. Due Diligence Department National Planning Holdings,
More informationRisk Control and Equity Upside: The Merits of Convertible Bonds for an Insurance Portfolio
Risk Control and Equity Upside: The Merits of Convertible Bonds for an Insurance Portfolio In a survey of insurance company Chief Investment Officers conducted by Eager, Davis & Holmes 1 in May 2009, 43%
More informationSix Strategies for Volatile Markets When markets get choppy, it pays to have a plan for your investments, and to stick to it.
Six Strategies for Volatile Markets When markets get choppy, it pays to have a plan for your investments, and to stick to it. Fidelity Viewpoints 8/22/15 The markets have become volatile again, prompted
More informationHolding the middle ground with convertible securities
January 2015» White paper Holding the middle ground with convertible securities Eric N. Harthun, CFA Portfolio Manager Robert L. Salvin Portfolio Manager Key takeaways Convertible securities are an often-overlooked
More informationHigh Yield Credit: An Evaluation for Prospective Insurance Company Investors
High Yield Credit: An Evaluation for Prospective Insurance Company Investors Low interest rates challenging traditional insurance company business model More insurance companies using high yield to mitigate
More informationSACRS Fall Conference 2013
SACRS Fall Conference 2013 Bank Loans November 14, 2013 Allan Martin, Partner What Are Floating Rate Bank Loans? Senior secured floating rate debt: Current Typical Terms: Spread: LIBOR + 5.00%-6.00% LIBOR
More informationDocumeent title on one or two. high-yield bonds. Executive summary. W Price (per $100 par) W Yield to worst 110
April 2014 TIAA-CREF Asset Management Documeent title on one or two The lines enduring Gustan case Book for 24pt high-yield bonds TIAA-CREF High-Yield Strategy Kevin Lorenz, CFA Managing Director Portfolio
More informationBonds: A Solution for Yield-Starved Insurance Companies?
August 2015 A Solution for Yield-Starved Insurance Companies: Dividend Equities Federal Reserve efforts to normalize monetary policy are unlikely to provide meaningful relief for yield-starved insurance
More informationM&G Corporate Bond Fund
Quarterly Review M&G Corporate Bond Fund Third quarter 2015 Fund manager Richard Woolnough Overview A general risk-off tone prevailed in the third quarter amid significant volatility in risk markets, driving
More informationSankaty Advisors, LLC
Leveraged Loans: A Primer December 2012 In today s market environment of low rates and slow growth, we believe that leveraged loans offer a unique diversification option for fixed income portfolios due
More informationA case for high-yield bonds
By: Yoshie Phillips, CFA, Senior Research Analyst AUGUST 212 A case for high-yield bonds High-yield bonds have historically produced strong returns relative to those of other major asset classes, including
More informationGauging Current Conditions: The Economic Outlook and Its Impact on Workers Compensation
August 2014 Gauging Current Conditions: The Economic Outlook and Its Impact on Workers Compensation The exhibits below are updated to reflect the current economic outlook for factors that typically impact
More informationA case for high-yield bonds
By: Yoshie Phillips, CFA, Senior Research Analyst MAY 212 A case for high-yield bonds High-yield bonds have historically produced strong returns relative to those of other major asset classes, including
More informationAverage Coupon. Annualized HY Return 1996-1998 18 358 12.62% 10.32% 2005-2007 24 346 8.51% 8.44%
UNDER THE SCOPE Walking the Line Is There a Magic Line for High Yield Spreads? April 2014 Is a credit spread of 400 bps a magic line for high yield? Is it easily crossed like the Maginot Line, is it a
More informationTHE POTENTIAL MACROECONOMIC EFFECT OF DEBT CEILING BRINKMANSHIP
OCTOBER 2013 THE POTENTIAL MACROECONOMIC EFFECT OF DEBT CEILING BRINKMANSHIP Introduction The United States has never defaulted on its obligations, and the U. S. dollar and Treasury securities are at the
More informationBond Investing in a Rising Rate Environment
September 3 W H I T E PA P E R Bond Investing in a Rising Rate Environment Contents Yields Past, Present and Future Allocation and Mandate Revisited Benchmark Comparisons Investment Options to Consider
More informationAre Unconstrained Bond Funds a Substitute for Core Bonds?
TOPICS OF INTEREST Are Unconstrained Bond Funds a Substitute for Core Bonds? By Peter Wilamoski, Ph.D. Director of Economic Research Philip Schmitt, CIMA Senior Research Associate AUGUST 2014 The problem
More informationFIXED INCOME INVESTORS HAVE OPTIONS TO INCREASE RETURNS, LOWER RISK
1 FIXED INCOME INVESTORS HAVE OPTIONS TO INCREASE RETURNS, LOWER RISK By Michael McMurray, CFA Senior Consultant As all investors are aware, fixed income yields and overall returns generally have been
More informationDocumeent title on one or two. high-yield bonds. Executive summary. W Price (per $100 par) W Yield to worst 110
May 2015 TIAA-CREF Asset Management Documeent title on one or two The lines enduring Gustan case Book for 24pt high-yield bonds TIAA-CREF High-Yield Strategy Kevin Lorenz, CFA Managing Director Portfolio
More informationEuropean high yield in 2015: a tale of two markets An M&G Investments Institutional briefing December 2015
European high yield in 215: a tale of two markets An M&G Investments Institutional briefing December 215 Weakness in US high yield in the last months of 215 has highlighted the relative strength of the
More informationThe Unsweet Sixteen. The Top 10 Factors Impacting the Economy in 2016. 2007 We are here > Treasury notes. Cash
The Unsweet Sixteen The Top 10 Factors Impacting the Economy in 2016 Ben Miller, CEO 2007 We are here > 2008 2009 Peak Best-Performing Asset Classes Commodities Recession Bottoming Recovery Expansion Treasury
More informationBond Market Perspectives
LPL FINANCIAL RESEARCH Bond Market Perspectives March 26, 2013 High-Yield Bonds and the Credit Cycle Anthony Valeri, CFA Market Strategist LPL Financial Highlights More speculative issuance has increased
More informationProject LINK Meeting New York, 20-22 October 2010. Country Report: Australia
Project LINK Meeting New York, - October 1 Country Report: Australia Prepared by Peter Brain: National Institute of Economic and Industry Research, and Duncan Ironmonger: Department of Economics, University
More informationGMO White Paper. What Do High-Yield Maturities Tell Us About Timing the Credit Cycle? Another Take on the Wall. Jul 2015.
GMO White Paper What Do High-Yield Maturities Tell Us Another Take on the Wall Ara Lovitt Everybody involved in the credit markets wants to know when the cycle will turn. On the one hand, it feels like
More informationKDP ASSET MANAGEMENT, INC.
ASSET MANAGEMENT, INC. High Yield Bond and Senior Secured Bank Loan Outlook October 2015 Asset Management, Inc. 24 Elm Street Montpelier, Vermont 802.223.0440 HighYield@kdpam.com This is an analytical
More informationCorporate Bonds - The Best Retirement Investment?
. SIPCO Corporate Bond Strategy The principles of SIPCO believe that bond investors are best served by primarily investing in corporate bonds. We are of the opinion that corporate bonds offer the best
More informationThe role of floating-rate bank loans in institutional portfolios
By: Martin Jaugietis, CFA; Director, Head of Liability Driven Investment Solutions DECEMBER 2011 Yoshie Phillips, CFA, Senior Research Analyst Maniranjan Kumar, Associate The role of floating-rate bank
More informationStatement to Parliamentary Committee
Statement to Parliamentary Committee Opening Remarks by Mr Glenn Stevens, Governor, in testimony to the House of Representatives Standing Committee on Economics, Sydney, 14 August 2009. The Bank s Statement
More informationTIMING YOUR INVESTMENT STRATEGIES USING BUSINESS CYCLES AND STOCK SECTORS. Developed by Peter Dag & Associates, Inc.
TIMING YOUR INVESTMENT STRATEGIES USING BUSINESS CYCLES AND STOCK SECTORS Developed by Peter Dag & Associates, Inc. 5 4 6 7 3 8 3 1 2 Fig. 1 Introduction The business cycle goes through 4 major growth
More informationOpportunity in High Yield Bonds
Research Opportunity in High Yield Bonds 2016 Q1 Quarterly Commentary Weyland Capital Management LLC - 22 Deer Street - Portsmouth, New Hampshire 03801 p. 603.433.8994 www.weyland.com This document reflects
More informationEnergizing High Yield Bond Investors: Finding Opportunities Amid Shifting Market Conditions
SM Energizing High Yield Bond Investors: Finding Opportunities Amid Shifting Market Conditions Energizing High Yield Bond Investors: Finding Opportunities Amid Shifting Market Conditions Contents Executive
More informationResearch. What Impact Will Ballooning Government Debt Levels Have on Government Bond Yields?
Research What Impact Will Ballooning Government Debt Levels Have on Government Bond Yields? The global economy appears to be on the road to recovery and the risk of a double dip recession is receding.
More informationOver a barrel: Causes and consequences of the fall in oil prices
November 14, 2014 Over a barrel: Causes and consequences of the fall in oil prices Executive Summary The $30 fall in oil prices since July reflects greater U.S. supply as well as worries about a significant
More information44 ECB STOCK MARKET DEVELOPMENTS IN THE LIGHT OF THE CURRENT LOW-YIELD ENVIRONMENT
Box STOCK MARKET DEVELOPMENTS IN THE LIGHT OF THE CURRENT LOW-YIELD ENVIRONMENT Stock market developments are important for the formulation of monetary policy for several reasons. First, changes in stock
More informationFixed-income opportunity: Short duration high yield
March 2014 Insights from: An income solution for a low or rising interest-rate environment Generating income is a key objective for many investors, and one that is increasingly difficult to achieve in
More informationGlobal Markets Update Signature Global Advisors
SIGNATURE GLOBAL ADVISORS MARKETS UPDATE AUGUST 3, 2011 The following comments come from an internal interview with Chief Investment Officer, Eric Bushell. They represent Signature s current market views
More informationThe Case for Unconstrained Fixed Income
White Paper April 2013 The Case for Unconstrained Fixed Income Fixed Income Team Goldman Sachs Asset Management (GSAM) Executive Summary Central bank intervention has driven interest rates in major government
More informationLarge and Small Companies Exhibit Diverging Bankruptcy Trends
JANUARY, 22 NUMBER 2-1 D I V I S I O N O F I N S U R A N C E Bank Trends Analysis of Emerging Risks In Banking WASHINGTON, D.C. ALAN DEATON (22) 898-738 adeaton@fdic.gov Large and Small Companies Exhibit
More informationFixed Income Update Portfolio Positioning
Fixed Income Update Portfolio Positioning April 2015 In 2014, we saw traditional relationships between equity and high yield performance diverge. Despite an improving U.S. economy Treasuries rallied along
More informationThe Fix Fixed income flashback: is history going to repeat?
December 2014 For professional investors only The Fix Fixed income flashback: is history going to repeat? Kellie Wood, Portfolio Manager, Fixed Income Traditional financial theory portends that bond prices
More informationGlobal high yield: We believe it s still offering value December 2013
Global high yield: We believe it s still offering value December 2013 02 of 08 Global high yield: we believe it s still offering value Patrick Maldari, CFA Senior Portfolio Manager North American Fixed
More informationHow close are we to the end of the credit cycle?
How close are we to the end of the credit cycle? SIGMA Credit Risk Premium Group October 214 Executive summary Investors in fixed income should bear in mind an observation from the veteran investor Howard
More informationWhat Investors Should Know about Money Market Reforms
What Investors Should Know about Money Market Reforms What Investors Should Know about Money Market Reforms Executive Summary Ò New SEC regulations for the $2.7 trillion money market industry may present
More informationU.S. Fixed Income: Potential Interest Rate Shock Scenario
U.S. Fixed Income: Potential Interest Rate Shock Scenario Executive Summary Income-oriented investors have become accustomed to an environment of consistently low interest rates. Yields on the benchmark
More informationThe Coming Volatility
The Coming Volatility Lowell Bolken, CFA Vice President and Portfolio Manager Real estate Securities June 18, 2015 www.advantuscapital.com S&P 500 Percent Daily Change in Price September 2008 to April
More informationBond Outlook. Third Quarter 2014. Waiting on the Fed. 10-Year Treasury Yields. Treasury Bonds. Break-even Inflation Rate
Third Quarter 21 Waiting on the Fed Despite a strong rebound in domestic economic activity with gross domestic production accelerating toward %, persistent low inflationary pressures and dramatically lower
More informationOctober 2015. PRUDENTIAL INTERNATIONAL INVESTMENTS ADVISERS, LLC. Global Investment Outlook & Strategy
PRUDENTIAL INTERNATIONAL INVESTMENTS ADVISERS, LLC. Global Investment Outlook & Strategy October 2015 Market Volatility likely to Remain Elevated on China Growth Concerns & Fed Rate Uncertainty. Stocks
More informationHow Smaller Stocks May Offer Larger Returns
Strategic Advisory Solutions April 2015 How Smaller Stocks May Offer Larger Returns In an environment where the US continues to be the growth engine of the developed world, investors may find opportunity
More informationBOND ALERT. What Investors Should Know. July 2013 WWW.LONGVIEWCPTL.COM 2 MILL ROAD, SUITE 105
BOND ALERT July 2013 What Investors Should Know This special report will help you understand the current environment for bonds and discuss how that environment may change with rising interest rates. We
More informationFixed Income Strategy Quarterly April 2015
Doucet Asset Management Fixed Income Strategy Quarterly April 2015 The first quarter of 2015 was a fairly uneventful one. Across the world, the pullback in yields we witnessed in 2014 continued; however,
More informationEAST AYRSHIRE COUNCIL CABINET 21 OCTOBER 2009 TREASURY MANAGEMENT ANNUAL REPORT FOR 2008/2009 AND UPDATE ON 2009/10 STRATEGY
EAST AYRSHIRE COUNCIL CABINET 21 OCTOBER 2009 TREASURY MANAGEMENT ANNUAL REPORT FOR 2008/2009 AND UPDATE ON 2009/10 STRATEGY Report by Executive Head of Finance and Asset Management 1 PURPOSE OF REPORT
More informationWhy own bonds when yields are low?
Why own bonds when yields are low? Vanguard research November 213 Executive summary. Given the backdrop of low yields in government bond markets across much of the developed world, many investors may be
More informationInterest Rates and Inflation: How They Might Affect Managed Futures
Faced with the prospect of potential declines in both bonds and equities, an allocation to managed futures may serve as an appealing diversifier to traditional strategies. HIGHLIGHTS Managed Futures have
More informationINTEREST RATES: WHAT GOES UP MUST COME DOWN
3 INTEREST RATES: WHAT GOES UP MUST COME DOWN John M. Petersen Melvin Mark Capital Group, LLC What an interesting time to be asked to write something about interest rates! Our practice emphasis is commercial
More informationWhy Treasury Yields Are Projected to Remain Low in 2015 March 2015
Why Treasury Yields Are Projected to Remain Low in 5 March 5 PERSPECTIVES Key Insights Monica Defend Head of Global Asset Allocation Research Gabriele Oriolo Analyst Global Asset Allocation Research While
More informationAbout Hedge Funds. What is a Hedge Fund?
About Hedge Funds What is a Hedge Fund? A hedge fund is a fund that can take both long and short positions, use arbitrage, buy and sell undervalued securities, trade options or bonds, and invest in almost
More informationFixed Income Asset Allocation
Fixed Income Asset Allocation j a n n e y fixed income strat e g y Our three-pronged approach to 2015 portfolio construction has run its course, with value today found in securitized products and preferreds.
More informationBond Market Insights October 10, 2014
Bond Market Insights October 10, 2014 by John Simms, CFA and Jerry Wiesner, CFA General Bond Market Treasury yields rose in September as prices fell. Yields in the belly of the curve (5- to 7-year maturities)
More informationStatement by. Janet L. Yellen. Chair. Board of Governors of the Federal Reserve System. before the. Committee on Financial Services
For release at 8:30 a.m. EST February 10, 2016 Statement by Janet L. Yellen Chair Board of Governors of the Federal Reserve System before the Committee on Financial Services U.S. House of Representatives
More informationDocumeent title on one or two lines in Gustan Book 24pt Commercial mortgages are HOT!
TIAA-CREF Asset Management Documeent title on one or two lines in Gustan Book pt Commercial mortgages are HOT! Martha Peyton, Ph.D., Managing Director TIAA-CREF Global Real Estate, Strategy & Research
More information2013 global equity outlook: Searching for alpha in a stock picker s market
March 2013 2013 global equity outlook: Searching for alpha in a stock picker s market Saira Malik, Head of Global Equity Research, TIAA-CREF Executive summary The outlook for equity markets is favorable
More informationAbsolute return strategies offer modern diversification
February 2015» White paper Absolute return strategies offer modern diversification Key takeaways Absolute return differs from traditional stock and bond investing. Absolute return seeks to reduce market
More informationEXECUTIVE SUMMARY. The commodity related sectors of Energy and Metals & Mining suffered the most damage.
HIGH YIELD MARKET UPDATE May 2016 Christopher C. Langs, CFA Vice President Taxable Bond Portfolio Manager EXECUTIVE SUMMARY The severe commodity selloff that began in late 2014 has had a profound impact
More information3Q14. Are Unconstrained Bond Funds a Substitute for Core Bonds? August 2014. Executive Summary. Introduction
3Q14 TOPICS OF INTEREST Are Unconstrained Bond Funds a Substitute for Core Bonds? August 2014 Executive Summary PETER WILAMOSKI, PH.D. Director of Economic Research Proponents of unconstrained bond funds
More informationThe Case for a Custom Fixed Income Benchmark. ssga.com/definedcontribution REFINING THE AGG
The Case for a Custom Fixed Income Benchmark ssga.com/definedcontribution REFINING THE AGG For decades, the Barclays US Aggregate Index (the Agg ) has been a popular benchmark for core bond investment
More informationConvertibles: An investment solution for Insurance portfolios in challenging times
Convertibles: An investment solution for Insurance portfolios in challenging times By: Ravi Malik, CFA April 2013 Introduction In recent years the Federal Reserve has implemented unprecedented monetary
More informationPrinciples and Trade-Offs when Making Issuance Choices in the UK
Please cite this paper as: OECD (2011), Principles and Trade-Offs when Making Issuance Choices in the UK, OECD Working Papers on Sovereign Borrowing and Public Debt Management, No. 2, OECD Publishing.
More informationFLOATING RATE BANK LOANS: A BREAK FROM TRADITION FOR INCOME-SEEKING INVESTORS
FLOATING RATE BANK LOANS: A BREAK FROM TRADITION FOR INCOME-SEEKING INVESTORS With about $713 billion in assets, the bank loan market is roughly half the size of the high yield market. However, demand
More informationHigh Yield Bonds A Primer
High Yield Bonds A Primer With our extensive history in the Canadian credit market dating back to the Income Trust period, our portfolio managers believe that there is considerable merit in including select
More information