| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Global high-yield corporate bonds once again led the field against other major fixed income in 2010, after also outperforming in 2009 |
Fundamentals - Jan. 17, 2011 - by Brian Bollen
The asset class continues to offer attractive investment opportunities for the year ahead, although the source of returns is likely to be somewhat different to the last two years.
Compelling income returns
Further spread narrowing
Will high-yield set the pace for the third year running? The question is posed by Western Asset Management, Legg Mason's largest fixed income specialist, which says it continues to see value in high-yield corporate bonds.
Global high-yield corporate bonds once again led the field against other major fixed income sectors in 2010, after also outperforming in 2009, WAM continues. “Despite their strong gains, we believe the asset class continues to offer attractive investment opportunities for the year ahead, although the source of returns is likely to be somewhat different to the last two years. Here's why. While capital appreciation across a broad cross-section of sectors and quality tiers was the main driver of returns over 2009-2010, over the year ahead a manager's issue selection and income rather than capital returns are likely to become more important. High-yield also looks attractive for investors who are concerned about developments in government bond yields and inflation.”
“Compelling income returns together with the potential for further spread narrowing in select sectors and issues should continue to draw investors to high-yield. As of 31 December 2010, global high-yield corporate bonds were yielding almost 8%, for example. Corporate fundamentals, meanwhile, are improving, supply and demand conditions in the high-yield market remain supportive and valuations remain compelling in a historical context. Although spreads have narrowed significantly over the last two years, they still account for a large proportion of the total yield (with around 70% of the total yield accounted for by the spread as of the end of 2010). At 540 basis points (bps) as of the end of 2010, US high-yield spreads, for example, are still above their long-term average of around 400 bps.”
“Credit fundamentals have been improving across a broad cross-section of high-yield companies. This trend should continue for the foreseeable future, as positive economic growth will be supportive of corporate profit growth, as well as deleveraging opportunities if companies so choose. Indeed, rating agencies are increasingly recognising the improved credit quality of many issuers, and we expect rating upgrades to accelerate. At the same time, default rates, which have fallen sharply, should continue to trend downwards and remain low for some time. This view is supported by several factors, including an improving economic backdrop and the fact that the asset class was cleansed of many of the weaker participants in 2009. While a slow, but positive economic environment is challenging for equities, it is actually favourable for credit as it encourages companies to maintain conservative balance sheet management. In fact, today's high-yield market is very much improved in terms of quality of issuer, consisting of issuers who survived the financial crisis and those issuers who were restructured with much improved financial profiles, including greater liquidity and less leverage.”
“Apart from the attractive yield prospects in a generally low yielding bond market environment, high-yield should also attract investors who are concerned about rising government bond yields and inflation. As interest rate developments will impact high-yield less than some of the other bond market sectors, this makes high-yield an attractive asset class for investors who are concerned about a potential increase in government bond yields and inflation. This was highlighted by developments in December, when the major government bonds markets sold off, while global high-yield bonds recorded significant gains.”
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| Stuff to look at |
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Income Security Recommendation January 2013 Issue.
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