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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
|
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)
|
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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Be Aware of Key Drivers and Risk Factors in High Yield Bonds |
Seeking Alpha - August 15, 2011 - By Richard Shaw
Junk bonds can be useful in portfolios, but in differing proportions based on position in the economic cycle. Be mindful that higher yield is not free – it comes with higher volatility risk (temporary capital gain and loss) and some degree of default risk (likely permanent capital loss). Look beyond the fund name, and into the composition of credits in the portfolio, before you buy.
Based on a paper issued by the Federal Reserve in 1996, variation in annual default rates for high yield (below investment grade) bonds is explained by three key factors:
Changes in the mix of credit ratings within the aggregate high yield universe;
The average age of the outstanding high yield bonds;
The state of the economy.
Good times in the economy and stock markets tend to permit more lower quality companies to issue bonds, thus lowering the aggregate credit quality of the high yield universe.
Default rates are low in the first year after issuance and become highest after three years, because (a) the market makes it very difficult for companies approaching default to issue bonds, and (b) immediately after issuing high yield bonds, companies have cash on hand to pay interest on their bonds. However, after three years, the cash on hand is likely to be less, and operational difficulties in the company have had time to mature.
In a rising or good economy, profits tend to rise for weak as well as strong companies, thus reducing the probability of high yield issuers being unable to service their debt. However, in a declining or poor economy the weaker companies tend to weaken more than the investment grade companies. Not only do the investment grade companies tend to have stronger balance sheets, but they tend to have stronger business franchises and greater access to refinancing credit than below investment grade companies.
Not mentioned in the Federal Reserve paper, but mentioned in a New York University paper by Professor Edward Altman, is the intuitively obvious fact that the mix of industries in the high yield universe also influences the aggregate default rate.
Of minor significance, and generally out of research reach (or at least effort) of most retail investors is whether the high yield bond was issued when the company was investment grade (a “fallen angel”), or issued when the company was already below investment grade. Fallen angels have slightly lower default rates.
For the complete article.
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| Stuff to look at |
Yield and Income Newsletter: A must have for income investors. subscribe NOW
S&P Commentary and Newsletters: S&P
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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