8.4% Yielder With Some Upside That Likely Won't Be On Sale For Long

Published Wed, 26 Sep 2018 07:00:00 -0400 on Seeking Alpha

(This idea was first presented to our members back in mid-May as a replacement for another Core holding)
High Yield Market Today High yield today is one of the few places to achieve a decent yield. Many would state that you are not being adequately compensated for the risks assumed. The statement revolves around the spread of high yield bonds today being extraordinarily "tight". When this is the case, the capital gains potential is relatively low unless spreads decrease to even lower levels.

At 324 bps, we are at the post-recession lows (or "tights") on high yield bonds. The effective yield today on the high yield master index is 6.20% which is actually up nicely from a year ago. So, despite spreads declining, rates have risen, thanks to higher interest rates. We do think this is often missed by those that make that statement that high yield isn't worth it from a risk standpoint. Given that we now receive 6.20% compared to 5.50% a year ago, from an absolute standpoint, income investors are much more able to meet their return objectives.
Defaults in the high yield space remain extraordinarily low. In fact, we saw no credit defaults in June which made the second quarter of 2018 the lowest in default activity since 2013.
The high yield market as a whole showed some nice performance in the second quarter after an effectively flat first quarter. The SPDR Barclay's High Yield Bond Fund ETF (JNK) returned 1.59% in the last three months,... Read more