* High-Yield Bonds
: Only for Long-Term, Non-Squeamish Investors
Even more cautious investors might consider SPDR BarCap ST High Yield Bond ETF (SJNK), which invests in high-yield bonds
that mature in three years or so.
The bottom line is that the daily returns of high-yield bond
issues and their firms' stocks have a statistically significant positive long-term correlation, but one that tends to be weak.
"How do high-yield bonds
fit into a diversified portfolios?
issuance in Europe, the Middle East and Africa (EMEA) outpaced that in the US for the last two years but increasing headwinds cause a more volatile environment for EMEA issuance in 2015, according to a new report from Moody's Investors Service, "EMEA High-Yield Market Mirrored North America's, but Paths Diverging."
Conventional thinking would say that high-yield bonds
should have a difficult time during a recession; after all, they are issued by companies prone to defaulting at the bottom of the business cycle.
And if the economy tanks, it could cause worries about corporations and their ability to pay off their high-yield obligations, making high-yield bonds
Expanding on Bookstaber and Jacob's work, Ramaswami (1991) reports success with a portfolio hedging strategy "based on the proposition that a high-yield bond
is a dynamic combination of equity and riskless bonds." Cornell and Green (1991) find that "movements in stock prices explain a larger fraction of the variance of low-grade bond returns than do movements in interest rates." Shane (1994) creates an index of 208 low-rated bonds and an index of the stocks of the issuers represented in the bond portfolio.
Unlike the public shareholders, management foregoes the cash and high-yield bond
portion of the package and, instead, receives the $24 in value by receiving six stub shares at $4 each.
Two high-yield bonds
sales in February were only completed after the issuers tightened the covenants significantly, more evidence that the market has reached a turning point, according to the report "North American High-Yield Bond
Covenants: Investors Push Back on Bond Covenants as High-Yield Market Tightens."
Summary: EMEA high-yield bond
issuance reached $118 billion in 2014, on par with 2013 issuance.
BANKING AND CREDIT NEWS-October 10, 2014--RBC Global Asset Management re-opens high-yield bond