Spooked clients junk investments in high-yield bonds

Spooked clients junk investments in high-yield bonds
Investors in junk bond funds withdrew $2.1B from the funds -- in a single day. As one portfolio manager sayd: 'There's clearly a panic going on in the market.'
AUG 05, 2011
By  John Goff
Intensifying concern over Europe's sovereign debt crisis and the potential spillover for the U.S. economy are creating “panic” in the junk-bond market, according to Pioneer Investment Management Inc.'s Andrew Feltus. Investors withdrew an unprecedented $2.1 billion from junk mutual funds globally on Aug. 9, research firm EPFR Global said. Relative yields on high-yield bonds, rated below Baa3 by Moody's Investors Service and lower than BBB- by Standard & Poor's, have soared to 730 basis points, the highest since 2009, while returns on the debt have declined 4.6 percent this month. “There's clearly a panic going on in the market,” Feltus, who oversees the $2.1 billion Pioneer High Yield Fund, said today in a Radio interview on “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. “Prices are at such a point that you can even survive a recession, but people aren't looking at the fundamentals. They're just looking at the technicals, and ‘get me out of here.'” Feltus's fund has declined 10.5 percent this month through yesterday, after climbing 17.6 percent in 2010, according to data compiled by Bloomberg. The extra yield investors demand to hold junk bonds instead of Treasuries has jumped 106 basis points, or 1.06 percentage points, since Aug. 5, when S&P stripped the U.S. government of its top credit grade. That implies defaults between eight and nine percent over the long term, while defaults currently are in the two to three percent range, Feltus said. “The volatility in the market's awful,” he said. “Right now you're trying to hang on.” --Bloomberg News--

Latest News

JPMorgan tells fintech firms to start paying for customer data
JPMorgan tells fintech firms to start paying for customer data

The move to charge data aggregators fees totaling hundreds of millions of dollars threatens to upend business models across the industry.

FINRA snapshot shows concentration in largest firms, coastal states
FINRA snapshot shows concentration in largest firms, coastal states

The latest snapshot report reveals large firms overwhelmingly account for branches and registrants as trend of net exits from FINRA continues.

Why advisors to divorcing couples shouldn't bet on who'll stay
Why advisors to divorcing couples shouldn't bet on who'll stay

Siding with the primary contact in a marriage might make sense at first, but having both parties' interests at heart could open a better way forward.

SEC spanks closed Osaic RIA for conflicts, over-charging clients on alternatives
SEC spanks closed Osaic RIA for conflicts, over-charging clients on alternatives

With more than $13 billion in assets, American Portfolios Advisors closed last October.

William Blair taps former Raymond James executive to lead investment management business
William Blair taps former Raymond James executive to lead investment management business

Robert D. Kendall brings decades of experience, including roles at DWS Americas and a former investment unit within Morgan Stanley, as he steps into a global leadership position.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.