Thursday, September 24, 2009

Corporate Bonds: From Cheap to Rich

In March I loaded up on both investment grade and high yield bonds (see Are Corporate Bonds a Screaming Buy?) as a long term investment (cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 key I thought was long term).

Yet by July, I was already beginning to cash out of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 positions as I thought cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y had rebounded too far, too fast. 5% more gains for cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 investment grade and 20% for cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 high yield universes gets us to a point where bonds went from CHEAP to what now seems RICH in just about 6 months. Bloomberg details cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 implications and relative value of bonds to equities:

Stocks offer greater value than bonds and are poised to “catch up” with a rally in corporate debt, according to Rod Smyth, chief investment strategist at Riverfront Investment Group LLC.

The CHART OF THE DAY shows that cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 difference in yield between corporates and 10-year Treasury notes has narrowed more quickly than cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Standard & Poor’s 500 Index has risen since March. The yield comparison is based on a Moody’s Investors Service index of Baa-rated debt. Smyth and colleagues Bill Ryder and Ken Liu had a similar chart in a report yesterday.

Since December, cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 yield gap has fallen to 2.9 percentage points from a peak of 6.2 points, according to data compiled by Bloomberg. This spread is near its lowest level since January 2008, when cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 S&P 500 was about 22 percent higher.

“‘Animal spirits’ are returning to Wall Street even if cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y are still suppressed on Main Street,” cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 report said. Spreads have narrowed so much that stocks have more room to rise than bonds, especially as earnings increase, it added.

Smyth isn’t cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 only strategist whose focus has shifted to shares. “Equities no longer look expensive relative to corporate bonds,” Andrew Garthwaite, a global strategist at Credit Suisse AG, wrote in a Sept. 18 report. He downgraded credit, or bonds, based on relative value.
While I am much less than bullish (actually bearish) on equities than those quoted in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 article, it is suspicious how far high yield has rebounded in 2009 as compared to equities. While those BBB bonds (as detailed in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 article) are now up more than 20% YTD, high yield corporate bonds are now up almost 50%.



Source: Barclays

1 comment:

  1. I sold many bonds recently, except for a few near term bonds and two muni positions that won't sell.

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