How High Yield Emerging Market Bonds Can Offer Hidden Value
HY EM bonds currently offer higher yields than both high yield US corporate bonds (HYG) (JNK) and high EM sovereign bonds.
Investors are flocking to government bonds (BND) of developed markets, which is causing downward pressure on interest rates.
High yield emerging markets corporate bonds have had a strong start to the year, outperforming emerging markets equities with a 7.8% year-to-date return at the end of May.
Yields remain at unattractive levels. This has caused yield-thirsty investors to flock to high-dividend-yielding stocks, driving their valuations higher.
Not only are European stocks cheaper than American ones, they also offer more attractive dividend yields.
Due to higher and consistent returns, investors are buying municipal bonds at a record rate.
Historically, investment-grade and high-yield municipal bonds (MUB) have a very low correlation with most other asset classes.
Generally, municipal bonds (SUB) are immune to market volatility, thus providing considerable support to a portfolio.
Over the years, average returns from municipal bonds (CMF) are in line with the broader index. They outperformed in some years and underperformed in others.
Municipal bonds (MUB) have provided an excellent return in the past year. The returns are even better if we account for their tax benefits.
Adding carry to your portfolio in a low-return scenario could cushion your portfolio.
The spread between high-yield bonds and ten-year Treasuries was high over the past three years, enough to lure investors to corporate bonds and away from equities.
U.S. municipal debt looks attractive against other bond sectors, and we see potential for inflows after munis’ recent strong performance.
The start of 2016 has been marked by an increase in the quantum of fallen angel bonds in the high-yield bond market (HYG) (JNK).
High-yield bond funds regained some lost favor this year. Fallen angel bonds could be an extremely attractive value proposition for investors.
Widening spreads indicate a slowing economy. Since companies are more likely to default in a slowing economy, credit risk related to their bonds rises.
Another cycle that is closely related to the business cycle is the credit cycle, the expansion and contraction of access to credit in an economy.
An investment in municipal bonds means investing at home. Munis are issued by U.S. states and their political subdivisions only.
Gross says it’s important for investors to “take care of their liquidity.” They should have their exit options open in their fixed-income portfolio.
According to Bill Gross, “Zero destroys existing business models such as life insurance company balance sheets and pension funds.”