Market Overview

Is The High-Yield Bond Market Partying Like It's 1999?

Is The High-Yield Bond Market Partying Like It's 1999?
Related JNK
How To Be Aggressively Bearish On Junk Bonds
New Names, Old Classics Among Short Sellers' Top Stocks
Yet Another Chart That Screams 'Look Out!' (Seeking Alpha)

In a new report, UBS analyst Matthew Mish compares the current U.S. high-yield bond market cycle to the cycle that occurred in the late 1990s. According to Mish, comparisons to the 1990s support UBS's idea that high-yield bonds will likely generate solid returns in a low-yielding environment in coming years.

In terms of default rates, Mish sees similarities to the past cycle. "Our speculative grade default forecast (bonds and loans) of 5-6% for 2016 implies bond default rates that will look largely in-line with the year 2000," Mish explained.

Related Link: 5 Must-Have Apps For Market Technicians

While high-yield valuations currently appear low compared to the previous cycle, he noted that much of the divergence is due to extremely low interest rates.

"HY bond valuations have re-priced significantly and are no longer expensive; in fact, the higher quality segments of the market will probably generate at least low-to-mid single digit excess returns, respectable in a low yielding environment," Mish concluded.

The SPDR Barclays Capital High Yield Bnd ETF (NYSE: JNK) is down 5.8 percent so far in 2016.

Disclosure: the author holds no position in the stocks mentioned.

Posted-In: Analyst Color Bonds Short Ideas Specialty ETFs Top Stories Economics Markets Analyst Ratings Best of Benzinga


Related Articles (JNK)

View Comments and Join the Discussion!