From Bond Vigilantes, October 31:
Financial markets can be a scary place for investors. The US economy
is now in its longest expansion on record, the world is seeing record
level of total debt and now even some corporate bonds have negative
yields.
If you’ve carved a pumpkin, got your Halloween costume and been to
see the latest scary movie, there’s only one thing left to do: take a
look at the Bond Vigilantes team’s 2019 Scary Charts.
If you’re searching for some decent yield right now, high yield must
be a good place to start, right? Year-to-date, investors have seen
double-digit returns in high yield: around 12% and 9% in the US and EU
index respectively. In our yield-deprived time, many who would normally
be holding investment grade bonds have been willing to sacrifice credit
quality and take a trip into high yield.
But watch out: when there has been the slightest sign of trouble in
some large household names this year, these high yield tourists have
wanted out at any price. Some high yield bonds have taken a plunge this
year, even where the bonds have not defaulted.
So if you’re dipping your toes into high yield, make sure it’s based
on a deep understanding of issuers and that there’s nothing lurking in
the depths…
If you thought that bonds were the safe and boring part of your
portfolio, think again. Take a look at these two bonds, the Argentina
8.75% 2024 and Austria 2.1% 2117.
After Argentina’s relatively market-friendly President Macri was
trounced in the primary elections by populist Fernandez, Argentinian
bonds were decapitated, with more than half their value chopped off.
They now trade at around $40 per $100 par value.
Meanwhile, investors in Austria’s AA-rated 2117 bond this year will
be patting themselves on the back for the trade of a lifetime. With a
duration of over 50 years, downward pressure on bond yields this year
saw the bond almost double in value....
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MUCH MORE
