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Old 06-25-2017,
aqunewok aqunewok is offline
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Default High Yield corporate bonds (Madcow)

Some brokers only offer "investment grade" bonds. Yours may or may not offer lower rated bonds?

Republic of Venezuela has a U.S. dollar bond with a high yield (corporate). That WAS looking good as they have a lot of oil money...

But they have a presidential election going on there. The incumbent President Chavez said to his opponent...

"You have a pig's tail, a pig's ears, you snort like a pig, you're a low-life pig. You're a pig, don't try and hide it,"

And he has aligned himself with Iran.

And I read something about him possibly diverting a lot of oil money into social programs for this election to get more votes - to the detriment of the oil industry there.

Things like that make me nervous!
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Old 06-25-2017,
aqeginili aqeginili is offline
 
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Then you will notice many corporations with high yield corporate bonds are losing money. Look at their financials.

Others which are making money currently have very high bond prices.

Anyway use a bond screener for yield, then check their financials. Search for news stories about the company and industry.

For example...

A solar electric panel company had a high yield bond, but they were losing money and then went bankrupt.

And the ethanol industry is not looking good recently.

Anyway check 'em out before investing...
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Old 06-27-2017,
apifxonm85 apifxonm85 is offline
 
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High yield is an area I don't spend too much time dissecting since these bonds will often trade like equities, ergo I'd rather just go with equities due to the theoretical unlimited upside whereas bonds have a capital appreciation potential that is relatively capped due to the fact they will mature at par. I'm sure your analysis has turned up that technically "high yield" means the bonds are below investment grade which translates to a credit rating of Ba1/BB+/BB+ from Moodys, S&P and Fitch respectively.

On the scale of highest grade to lowest grade in descending order you'll find Treasuries occupying the top spot, followed by Agencies (Fannie Mae, Freddie Mac, Ginnie Mae, etc) and high grade munis with AAA and AA ratings, then high grade corporates which will rarely ever earn AAA or Aa1/AA+ ratings. The next cohort will be investment grade corporates with A ratings or Baa/BBB ratings. Bringing up the speculative category are 'junk bonds' which are what The Street refers to as high yield corporates.

A lot of bond funds are prohibited from owning bonds with non-investment grade ratings so often when a credit is downgraded below the lowest investment grade level it will sell off in dramatic fashion and the spread will widen considerably versus what you'll find from one investment grade rating to the next (e.g. say the spread from A1 to A2 will be much narrower than that between BBB- to BB+) because bonds funds are unloading the credit en masse.
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Old 06-28-2017,
Arthurnib Arthurnib is offline
 
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The reason I mentioned the pecking order of credit quality in the second paragraph is because the appetite for risk follows a fairly predictable pattern with the business cycle. As the economy slows down and heads in to a recession lower grade credits will sell off first as capital seeks safety in Treasuries and high grade muni bonds and high grade corporates of secular issuers (health care and consumer staples). Corporate bonds of cyclical issuers like industrials will take a hit as will anyting rated below investment grade. It is during this sell off that spreads - the additional yield over the Treasury yield curve - will widen which symbolizes the extra compensation investors are demanding to hold what they view as riskier debt. As the economy looks like it is coming out of recession it is often the high grade corporates that react first and you'll see spreads for A1 rated credits narrow over the Treasury curve. Once yields are so low on investment grade credits and the economy looks to be in good health you'll see money flow into speculative credits and those spreads will start to narrow. This is where we are now, but it's mostly due to investors stretching for yield moreso because of the Federal Reserve manipulating the fixed income market than an improving economy.

Keep in mind yields on the short end of the curve (under 5 years) will price off the Fed Funds Rate which the Fed has pledged to keep below 25 basis points (0.25%) through late 2014. So investors can't get much yield buying Treasuries in this part of the curve and anyone looking for yield bid up high grade munis and corporates years ago so spreads in these two spaces are very tight to the Treasury curve. When the Fed announced Operation Twist the market decided to increase their duration which is bond speak for buying the long end of the yield curve (15-20 yr maturities and longer). Now that high grades are also trading tight to the Treasury curve in this long end of the curve the last place to find any kind of yield is in the junk bond arena so for the last few months these bonds have been trading higher in price (lower yield).
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Old 06-28-2017,
ARThogy ARThogy is offline
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I wish I knew some junk bond names but as mentioned above I don't follow individual issues in this space. I'd rather trade equities since the correlation is so high and equities have more liquidity in the event I need to sell in a hurry. Are you being shown a few names in particular by your broker? I'd be happy to lend my opinion on the issuer but I won't have the expertise to comment on the covenants in the bond indenture itself.

I've included a few charts below showing popular ETFs for the investment grade bond market (price), the high yield market (price), and the S&P500 for a benchmark index of the equity market. Note the correlations of high yield and equities and the relative non-correlation of investment grade with the other two.
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