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Junk bonds at all time highs - [email protected] next?

Yesterday a slew of junk bond funds closed at all time highs on a total return basis. The proxy index for junk bonds closed at 1343.59 vs its May 1 all time high of 1344.07. Prior to that May 1 top, junk bonds had been making all times highs on a seemingly daily basis since mid February. Unless there is some reversal in today’s trading (anything is possible) the junk bond index will also close at all time highs.. How can this be? If you read the commentary below you will read that the macro and micro economic data continues to deteriorate.

https://www.marketwatch.com/story/this-big-wall-street-bear-warns-his-bleak-scenario-for-2019-is-taking-shape-2019-06-10

Comments

  • edited June 11
    We seem to be stuck in a low interest rate world where the weak get to survive to fight another day. And the Fed seems to be ready to provide some more help. Maybe some of the cracks in the dam in this strange new world get brushed aside because they haven't caused a major market melt down in the past. Maybe Animal Spirits get to prevail until one of this new breed of cracks actually puts a major hole in the dam. Only then will the markets decide to take notice. Isn't that the way some of the major stock market tops happen?????

    Here is one of the articles that talks about some of the cracks in the dam some people are currently noticing....

    https://bloomberg.com/news/articles/2019-06-11/regulators-alarmed-by-risky-loans-but-don-t-know-who-holds-them?srnd=fixed-income
  • edited June 11
    "Just because the banks are safer doesn’t necessarily mean the financial system is"

    Here's a few selected excerpts from davfor's Bloomberg link, just above. The entire article is well worth a read.
    Leveraged lending has raised eyebrows partly because of how lightly it’s regulated. Fueled in large part by demand from collateralized loan obligations that offer interest rates that approach 9% on some riskier portions of the debt, the market for leveraged loans has more than doubled since 2012.

    One of the ironies of the boom is that much of the risk-taking decried by central banks and regulators is largely of their own making.

    Years of ultra-low rates have made it easier than ever for less-creditworthy companies to borrow large sums of money, all while pushing investors toward riskier investments. At the same time, post-crisis bank regulations have fueled the rise of shadow lenders, which helped facilitate the growth of leveraged lending. Then, financial watchdogs appointed by the Trump administration started encouraging Wall Street to dial-up more risk last year by easing guidelines to limit lending to deeply indebted companies, which freed banks to compete more directly with non-bank firms to underwrite the riskiest loans.

    • “Whenever you give children toys, you know they’re going to keep playing with them until they break them,” said Phil Milburn, a fund manager at Liontrust Asset Management in Edinburgh, Scotland. “Someone has to come into the room and say put your toys down.”

    • Wells Fargo research suggests buyers of CLOs include U.S. banks, insurers and hedge funds, as well as a large number of non-U.S. financial firms.

    • Pimco, the world’s largest bond investor, said last month the credit market is “probably the riskiest ever.”

    • When the credit cycle finally does turn, UBS estimates investors in junk bonds and leveraged loans could lose almost a half-trillion dollars, more than any downturn since at least 1987.

    • Just because the banks are safer doesn’t necessarily mean the financial system is, says Karen Petrou, managing partner at Federal Financial Analytics, a regulatory-analysis firm.


    Comment: Well, it certainly won't be this administration that tells anyone to put their toys down.
  • @MFO Members: davfor posted a comment along with a link to share with MFO Members. Unfortunately, another members duplicates the Bloomberg article, for what reason I'll never know. Perhaps he is so desperate for attention since his Boeing comments a making the majority of MFO Members eyes roll over in utter boredom !
    Regards,
    Ted:(
  • edited June 11
    @Ted: I would have hoped that a former teacher would understand the difference between "duplicates" and "expands upon". Evidently not, at least in your case. We can only hope that English or grammar were not your primary teaching assignments.

    That Boeing thread has now run for over three months, with over twentyseven hundred views. Your typical quantity vs quality posts barely last one day, and are lucky to get 27 views. How would you have any idea what "the majority of MFO Members" eyes are looking at? In any case, certainly not at your links.

    By the way, I note that linter has just posted a comment in the Boeing thread which you might find of interest.

    Regards,
    OJ
  • I love
    Junkster said:

    Yesterday a slew of junk bond funds closed at all time highs on a total return basis. The proxy index for junk bonds closed at 1343.59 vs its May 1 all time high of 1344.07. Prior to that May 1 top, junk bonds had been making all times highs on a seemingly daily basis since mid February. Unless there is some reversal in today’s trading (anything is possible) the junk bond index will also close at all time highs.. How can this be? If you read the commentary below you will read that the macro and micro economic data continues to deteriorate.

    https://www.marketwatch.com/story/this-big-wall-street-bear-warns-his-bleak-scenario-for-2019-is-taking-shape-2019-06-10

    New highs in the [email protected] today. So now what? Place your bets. The bears would argue many of the other indexes are still below their highs of January 2018 and this is a bull trap. I believe Jeff Gundlach is in that camp who continues to postulate “this is a bear market. The bulls would argue we are breaking out of a triple top in the [email protected] and it will be a swift move upwards from here. They would also argue there is a lot of bearish sentiment and underinvested investors out there for a market making news highs. In the meantime, today will be yet another new all time high in the junk bond market.
  • Is this the latest uphill climb peak Before crash
  • TedTed
    edited June 20
    @MFO Members: Its not only junk bonds, I reasonably certain that PONCX along with other multisector bond funds will close at an all time high. I was right, PONCX closed at $12.13
    Regards,
    Ted

    Lipper: U.S.-based investment-grade bond funds post inflows for 3rd straight week:

    https://www.reuters.com/article/investment-mutualfunds-lipper/update-2-u-s-based-investment-grade-bond-funds-post-inflows-for-3rd-straight-week-idUSL2N23R1EN
  • @johnN

    Your words: " peak Before crash"

    Absolute.

    You may tell any family and friends who are invested in the markets that "Catch" says so, on this 20th of June, 2019. He/she/they should take action now to position their assets accordingly.

    The below is to be considered an electronic signature and valid in some U.S. states.

    Catch
  • edited June 20
    Ted said:

    @MFO Members: Its not only junk bonds, I reasonably certain that PONCX along with other multisector bond funds will close at an all time high. I was right, PONCX closed at $12.13
    Regards,
    Ted

    Lipper: U.S.-based investment-grade bond funds post inflows for 3rd straight week:

    https://www.reuters.com/article/investment-mutualfunds-lipper/update-2-u-s-based-investment-grade-bond-funds-post-inflows-for-3rd-straight-week-idUSL2N23R1EN

    Yes it was an exceptionally strong day in bonds of all stripes and colors from PDIIX in multisector to PFORX among others in world bonds dollar hedged. Corporate junk surprised even me by its strength. VWEHX up 69%. But @Ted I think you missed the gist of my post. It was in reference to mynoriginal post of June 11 above and how could junk bonds be making all time highs then with the world seemingly coming to an end ( attached link from 6/10 above). And will the [email protected] be next. This is now twice this year junk has lead the [email protected] to all time highs.

  • edited June 21
    Glad I never subscribed to the “Sell in May ... Go Away“ method of investing.

    Looks like Ted linked a thread on that topic a month ago. Appears there were no responses from the board. https://www.mutualfundobserver.com/discuss/discussion/49979/what-to-throw-away-in-may
    The article is from Forbes and is titled : “What to Throw Away in May.”

    A few snippets from the linked column follow:

    - if the first half of May’s decline “gets legs” and is more a beginning than an end, don’t count on finding too many stock market areas that buck the downtrend. Utilities, REITs, and Consumer Staples stocks are typical outperformers when the market’s first knee-jerk reaction occurs. But as declines deepen, these tend to be treated not as conservative ways to still own stocks, but as part of the club…a club that is out of favor.

    - Gold and gold stocks, like Utilities and REITs, probably feel good for a little while amid the equity market carnage. But my chart work shows me that the upside is likely limited.

    - “Credit” Bonds – to paraphrase a famous movie line…I see dead asset classes. I have written to you for some time about my deep concerns for investors who have been “chasing yield” the past several years, trying to make up for paltry income returns from CDs, T-bills and Money Market Funds. This happens in every cycle, and it is happening again. High Yield Bonds, Convertibles, Bank Loan Funds, Closed-End Bond Funds (which are typically full of leverage) are all flirting with trouble right now.

    - U. S. Treasury Securities / This is a tool for traders and investment managers, but I fear that too many investors and financial advisors have shoved long-term bonds into portfolios to boost the yield, but are not considering how much risk they are taking if they view it as a “buy and hold” position.
  • edited June 22
    Hi @hank.,

    The "Sell in May" axiom has many spins to it. Below is mine.

    Generally, Old_Skeet does a portfolio review and a calendar rebalance in May and October and at other times if felt warranted. My asset allocation threshold is 20% cash, 40% income and 40% equity. I allow for a 2% + (or -) movement from the threshold for my income and equity areas while I generally let my cash area float. In addition, I can, if felt warranted, tactually let equity bubble up to +5% from it's threshold. With this, the cash area can float from a low of 13% up to a high of 24% depending on where my income and equity allocations bubble.

    As we entered May I was equity heavy; and, I reduced my allocation to equities raising my allocation to cash. As equities pulled back in May I did a little buying but staying well within my asset allocation ranges, of course. So, thus far, this has worked well for me playing the swing so-to-speak. My market barometer is a tool that I developed and I use to assist me with market calls along with using it to help me throttle my equity allocation. As of market close June 20th, it scored the S&P 500 Index as extremely overbought. Perhaps, now might be a time, for me, to take a little off the table and book some profit since the S&P 500 Index reached a new all time hight.

    The Sell in May and Come Back After St. Legers Day axiom is one that my family has followed for a good number of years. For us this has worked well through the years; but, like most everything else it does not work every year.

    It will be interesting to see how stock valuations bubble as we approach fall. For me, the Sell in May theme simply reflects calendar times to review and, at times, to rebalance my portfolio, if warranted. After all, most of the gains in the stock market have historically taken place during the fall and winter months. It is during these times that Old_Skeet chooses to be equity heavy and then light to normal during the other periods.

    So, with this, I am, in general, a subscriber to the Axiom.
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