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Why high yield bonds make sense today (lip)

edited August 2011 in Fund Discussions

I don't have any exposure to high-yield bonds, mainly because I do not understand them well.
It would be interesting to hear the take from experts on this forum.


  • Problem is that junk bond navs erode over time. So you have to put back a percentage of the yield.
  • edited August 2011
    hi Kaspa
    any vehicles/equities/bonds, etc... have their own risks. The fundamental of economy is much better compared to Fall 2008, banks maybe starting to lend, more confidence are back in market, corporations sitting on mountains of cash and maybe hiring soon. These factors could be favorable for HY bonds and maybe good headwinds from now. We also had a small corrections and more investors are jumpin' back into HY. We do have record low interest rates which give bonds yields more attractive comparing to CDs. We have less and less corporate defaults going forward and these conditions highly favor corporate junkie bonds. The chance of most of corporations heading toward bankruptcy are also much lower today.

    However, there are risks and these bonds that are BB or lower have ~ 15s-20s% default given long term studies.

    The differences between corp HY ETFs/funds versus single private bonds are ETFs & funds are more diversed and you are more protected and one bond gives more returns but also has more risks in return

    I do have lots of privatized corp bonds, I mostly buy BB+ or higher and the chance of bankruptcy are much less

    One example - I did have some TXU bonds but sold it - once was the largest energy provider in Texas but due to low natural gas prices this company has lost lots of $$ and they may face default and perhaps bankruptcy... If one bond default you may loose all your $$ [pending legal court actions and you may get cents on the dollars back]. If you have JNK [junk ETFs] you certainly get the monthly dividends but the NAV would be highly correlated with everyday's price and you may not get all the capitals back if some of the holding bond mature.

    good luck
  • Thanks, JohnN.
  • Reply to @Anonymous:

    I will second fundalarm's below....."huh?" Desota, have you a document or an explanation of your statement? "We" don't understand the statement.

    Thank you and take care,
  • I would prefer to capture High Yield within a solid multisector bond fund such as AGDYX or other highly rated bond funds.
  • I'm a big fan of Gundlach and own his DBLTX/DBLEX and RNSIX. I recall of few of his comments on HY and they were all negative. That stopped me from making a play for them via an ETF or otherwise at this time in a search for yield. I would be very discriminating and selective here with HY. But this also plays into my negative view of the economy and my deflation bias. More suffering to come, I believe.
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