junk bonds

Hormiguero_IHB

Hormiguero_IHB

New member
Do a search in the yahoo finance window for 'high yield' if you're curious about this one.



I bought early (as I always do) into JNK, which allows for intraday trading, as opposed to the big Janus and Vanguard funds.



In any case, it is certainly interesting that folks are snapping up foreclosures in the nether regions of the Central Valley and High Desert in the hopes of maybe getting a 10% cap if they're lucky, after a ton of personal legwork and refurb work, meanwhile, I wouldn't be shocked if the intraday low on JNK reflected a yield of 20% or so. And that's for some of the largest companies in America, who may well have an extremely rough year, but will likely not default. Of course, the high yield funds that have a nice chunk of automaker paper are now approaching yields that would make Vinnie the Loanshark blush.



Thoughts? Am I just being a bug to the bugzapper again with this sector? Or is the 1500 basis point gap between this group and treasuries totally loco?
 
loco.



you just have to find a fund that has a portfolio that you like. i don't know how the JNK works. is it an ETF that is a 'fund of funds'?
 
JNK is more or less the same concept as the many ETFs that mimic mutual funds. It is not a fund-of-funds (which is hopefully a concept that gets trimmed back as the hedge funds who helped develop them as a means to suck out yet higher management costs get shut down).



<a href="https://www.ssgafunds.com/etf/fund/holdings/holdings_JNK.html">looks like it is heavy on utilties and telecoms - not too many automakers, banks or homebuilders</a>
 
i somewhat concur that corp debt has been oversold. sure theres some default risk out there but 20% yields? maybe the risk is overblown? back of my mind i still cant help wondering if others know something i don't.



i've been going over in my head a general strategy when i enter back into the mkt, it'll be in debt first. if there are dramatic changes in store for for the equity mkts such as revisions to tax policy, general fear of investing, or something else we havent imagined yet like elimination of 401k, then we could see bonds outperform for quite a while. the same occurred for during the last, much milder, bear mkt in stocks.
 
quite honestly i don't know yet, but given that i really even pick individual stocks in personal accts so i doubt i'd pick individual bond issues either.



theres a huge amount of bankruptcy risk priced in that anything not at least A seems to be trading at near-junk. even if you ignore junk, a double digit yield on <a href="http://research.stlouisfed.org/fred2/series/DBAA?cid=47">Baa</a> certainly looks attractive. your point about the trustworthiness of ratings is a good one. wasn't lehman A or higher right up until it went bankrupt?



i think a whole slew of bankruptcies esp if a poorer than expected holiday season. but then default risk begins to subside after 1Q... on the equity side though, it'll take longer for companies to even begin to show a potential for earnings growth again and after that the possibility of very mild growth in a delevered world.



but making the comparison between stocks and bonds, right now high grade has a yield of about 7.5% with near-term inflation looking like 0% so thats basically a real yield. the yield has gone up approx from nominal 5.3% at the beg of the yr so it hasn't been a crushing blow to high grade and we might have seen the worst of it.



i'll take 7.5% return in this environment with (even assuming ratings are wrong, so let's say AAA is actually BBB) a medium risk profile. maybe even throw in some B grade debt at a 10% yield. compared to equities right now where risk is still sky high and the reward is possibly several quarters away still. and its hard to like equity with the VIX still hitting 80 every so often.



and for those waiting for stocks to come roaring back, the original post brings up a good point -- if you're shooting for the moon, why not just buy junk? it seems like the risk/reward profile for bonds is slightly more advantageous than for stocks at the moment.



<em>p.s. any bond gurus out there, pls shoot holes in my thinking...</em>
 
Personally, stay away from bonds. If you want to place a small amount in bonds go for it. However, I would only buy bonds short term. Long term inflation will kick in and something that looks attractive today...won't be. Don't lock away your capital. I wouldn't place more than 5% of my portfolio in bonds.

As far as equities, I guess its just how you play it. If you are the type who only buys long, than perhaps you might be sitting on dead money. At the same time if you buy long, short, take advantage of buying puts and calls, sell puts and calls, buy/short certain currencies, buy long term gold call contracts, hold cash and even throw in some bonds, then you can profit immensly.



I have 5-10% of my portfolio that I literally day trade on instinct and daily technicals. The rest of my portfolio is careful engineered to create the right mix of all types of investments. I'm often very well hedged and I often sleep very peacefully at night no matter what the market conditions.
 
maybe i should clarify... what i'm thinking about is an overweight in bonds vs stocks, or specifically corp debt. you could call this an opportunistic move, but only still in the context of general portfolio allocation.



similar philosophy presented in this piece here:

<a href="http://seekingalpha.com/article/104984-stocks-vs-bonds-an-update-for-the-current-market">http://seekingalpha.com/article/104984-stocks-vs-bonds-an-update-for-the-current-market</a>



i believe you're saying you can beat any portfolio allocation strategy by trading actively and picking out short-term opportunities, which i agree with except we're talking about significantly diff investment philosophies. most investors would be constrained by knowledge, time, or amount of capital to trade as you do. and even those in the investment profession might have legal or compliance constraints as suggested in your "should i take the job" thread. so unfortunately we just have to make do.
 
looks like santa brought the rally I was waiting for on this one!



hopefully, at least one small investor out there caught a little of the action.



merry xmas to all.
 
I've been buying AAA rated California municipal bonds that have tax free yields around 4%. One nice thing about buying municipal bonds (or corporates or Treasuries or government agencies) is they are marginable in your portfolio, so you have the yield working for you, and at the same time you can sell puts and calls to create synthetic long or short stock positions. If you have a positive expectation stock or option strategy you can enhance your taxfree return.
 
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