Thursday, October 31, 2019

"Six scary charts to spook investors this Halloween"

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....