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| BondsOnline.com: instant access to and extensive coverage of over 3.5 million stocks, bonds, indexes and other securities covering major and emerging markets and exchanges across the globe. |
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| 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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Prospects for Junk Bonds in 2010
Are junk bonds a buy? |
Forbes.com - Jan. 21, 2010 - by William Baldwin
Are junk bonds a buy?
You coulda bought risk last year. You woulda made a bundle.
The junk bond market delivered a total return in the neighborhood of 57% for 2009, a blend of fat coupons and rising prices. You could have made a whole lot more than that buying common shares of the junkiest companies (see "The Risk List"). Risk taking was amply rewarded.
The big rebound has a lot of people breathing a sigh of relief. Is the debt crisis over? Far from it. As the cover story by Daniel Fisher explains (see The Global Debt Bomb), the world is still awash in debt that might not get repaid. This year will see tens of billions in corporate bonds sinking into default. There's no telling when sketchy borrowers like Venezuela or California start stiffing bondholders.
The question for investors: Am I getting adequately compensated for risk? If you own Japanese government debt, probably not. If you are buying corporate junk bonds, probably yes.
I visited two elder statesmen of the high-yield market to get their outlook for 2010. Martin Fridson and Edward Altman are, respectively, somewhat bullish and a little skeptical.
Fridson, who manages junk portfolios from the Manhattan office of Fridson Investment Advisors, has sketched out a scenario that has the category delivering a 10.8% total return this year, slightly better than the long-run average return displayed in the chart. His elaborate calculations take into account the shape of the yield curve and the value of options built into corporate bonds. Those options work against the investor. They give companies the right, if business goes well, to call in high-yielding debt and replace it with low-yielding debt. If business goes the other way, you're stuck with the bum loan.
Fridson is banking on a modest price gain as yields come down a bit more. He estimates that 3.6% of junk will go into default. Since bonds from sickly borrowers are already trading below par and creditors recover something in a bust, this translates into a 1.4% loss of principal. One of his holdings is a 10% bond from Energy XXI. This firm is a beneficiary of a huge gas find called Davy Jones (for more on that, see "At 89 a Wildcatter Strikes Again"). The bond illustrates what's good and bad about junk. The yield is nice. But, as always, it's a lopsided bet. Dry holes hurt lenders to wildcatters; a gusher makes someone else rich.
Altman is a professor at New York University and a consultant to investment firms. He doesn't make return forecasts, but he notes that yield spreads over Treasuries are already meager by historical standards and thus unlikely to go lower. He does forecast default rates. Expect 5% to 8% of junk bonds to go bad this year, he says.
Should you have money in junk? Some, yes. Go in with your eyes open.
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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