With Investors Piling Into Risky Debt, Yields Are Dropping Even Further February 10, 2021
Rates were at bottom-of-the-barrel lows during much of 2020, causing a voracious appetite for yield. This caused fixed income investors to pile into risky debt, and is now dropping yields further.
In the current market landscape, Treasury yields are starting to head higher. This, in turn, could cause a flight from riskier debt and back into more safe haven government debt.
In the meantime, the average yield on risky debt is starting to head lower.
“The average yield on U.S. junk bonds dropped below 4% for the first time ever as investors seeking a haven from ultra-low interest rates keep piling into an asset class historically known for its high yields,” a Bloomberg article noted. “The measure for the Bloomberg Barclays U.S. Corporate High-Yield index dipped to 3.96% on Monday evening, making it six straight sessions of declines.”
Junk bonds off to record start in 2021 as Goldman sees low chance of higher rates that ‘kill the business cycle’ MarketWatch 1/22/2021
That was fast.
U.S. companies considered risky enough to warrant below investment-grade, or “junk,” credit ratings have borrowed about $32 billion in the corporate bond market so far in 2021, the fastest clip ever.
Goldman Sachs analysts pegged the new bond supply as “off to its strongest start ever,” through Jan. 20, or about 35% ahead of last year’s pace, “which itself was elevated relative to historical standards.”
Even while the pandemic crippled much of the U.S. economy last year, U.S. companies borrowed record amounts in the bond market, including making a big push in January. In doing so, they have seized on ultralow borrowing costs available through a global hunt for yield and the persistence of highly accommodative central bank policies, including by the Federal Reserve.
January 15, 2021
ETF investors can uncover some of the latest investing themes by looking closely at fund flows. ETF issuer DWS is enjoying strong inflows in areas such as ESG, high yield, and China A-Shares investing.
Here are the top three:
MSCI USA ESG Leaders Equity ETF (USSG): USSG was developed in collaboration with Ilmarinen, Finland’s largest pension insurance company. The underlying MSCI USA ESG Leaders Index provides exposure to large- and medium-cap U.S. companies with high ESG performance relative to their sector peers.
USSG includes companies that score in the top 50% of scores in each sector and so will own about half as many companies as the parent index then weights those stocks to keep the sector allocation in line with the parent index. The fund excludes companies involved in alcohol, tobacco, gambling, controversial and conventional weapons, nuclear power, and civilian firearms.
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The chief executive and founder of DoubleLine suggested looking at a beaten-up and unloved sector of credit markets: bank loans. Alex Flynn/Bloomberg
Risks lurk in an overvalued stock market and the bond market with inflation on the horizon, DoubleLine chief executive and founder Jeffrey Gundlach said. But the fund manager dubbed by
Barron’s as the Bond King nearly a decade ago does have one pick for income investors.
In an interview with CNBC, Gundlach suggested looking at a beaten-up and unloved sector of credit markets: bank loans, which ended 2020 with price losses in many cases as fund investors fled the sector. By contrast, fund investors rushed into other parts of the credit market, especially junk bonds, in their quest to grab what little income was available after the Federal Reserve slashed short-term interest rates to zero and provided unprecedented support to the corporate bond market.
Morningstar Prospects, a list of up-and-coming or under-the-radar investment strategies that Morningstar Manager Research thinks might be worthy of eventual full coverage, added four new strategies in the second half of 2020.
Here s a look at the strategies that the team added to the January 2021 list and what each has to offer.
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