Description
FLEXIBLE BOND
HIGH YIELD STRATEGY
$100-200 billion) are downgraded and partially change hands
from investment grade to high yield investors. In reality, not only
is the total supply of fallen angels a manageable 5-10% of the
entire high yield market, but these bonds typically experience the
most severe price declines before their downgrade. For example,
copper producer Freeport-McMoRan’s 6.875% senior notes due
2023 plunged from a high of $111 in June 2015 to a low of $45
on January 21. Since Moody’s announced the long anticipated
downgrade on January 27 (from Baa3 to B1), the bonds have
rallied from $48 to $75.
It is important to keep energy and commodities in perspective.
The Energy and Metals/Minerals sectors in total represent only
15% of the high yield market.
And even after the recent rally, prices still reflect a "lower for longer" scenario. The average energy and metals/mining bond now trades at 64 and 71 cents on the dollar, respectively – similar to where they were at the beginning of December 2015. We continue to view commodity credits with a long-term perspective, focusing on their yields compared to the asset coverage. We believe both the fundamentals and value – both absolute and relative - of the US high yield market continue to be strong.
Of the 40 largest issuers in the BofA Merrill Lynch High Yield Bond Index, 35 are publicly traded and have multi-billion equity market caps. As of March 9, the BofA Merrill Lynch High Yield Index had a yield of 8.7%, and its spread of 723bps over Treasuries remains significantly wider than the median of 556bps since the start of 2000. Meanwhile, US and global interest rates remain extremely low (according to Bloomberg, approximately 29% of developed sovereign debt globally has a negative yield). Availability of this document and products and services provided by MacKay Shields may be limited by applicable laws and regulations in certain jurisdictions and this document is provided only for persons to whom this document and the products and services of MacKay Shields may otherwise lawfully be issued or made available. None of the products and services provided by MacKay Shields are offered to any person in any jurisdiction where such offering would be contrary to local law or regulation.
This document is provided for information purposes only. It does not constitute investment advice and should not be construed as an offer to buy securities. The contents of this document have not been reviewed by any regulatory authority in any jurisdiction. Note to European Investors: This document is intended for the use of professional and qualifying investors (as defined in the Alternative Investment Fund Manager’s Directive) only.
Where applicable, this document has been issued by MacKay Shields UK LLP, 200 Aldersgate Street, 13th Floor, London EC1A 4HD, which is authorised and regulated by the UK Financial Conduct Authority (FRN594166). Please note that security specific disclosures are representative and may not be included in your portfolio. This material contains the opinions of the High Yield team of MacKay Shields LLC but not necessarily those of MacKay Shields LLC. The opinions expressed herein are subject to change without notice. This material is distributed for informational purposes only.
Forecasts, estimates, and opinions contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Any forward-looking statements speak only as of the date they are made and MacKay Shields assumes no duty and does not undertake to update forward-looking statements.
No part of this document may be reproduced in any form, or referred to in any other publication, without express written permission of MacKay Shields LLC. ©2015, MacKay Shields LLC. BofA Merrill Lynch, used with permission. BofA Merrill Lynch is licensing the BofA Merrill Lynch indices and related data “as is,” makes no warranties regarding same, does not guarantee the suitability, quality, accuracy, timeliness, and/or completeness of the BofA Merrill Lynch indices or data included in, related to, or derived therefrom, assumes no liability in connection with their use, and does not sponsor, endorse, or recommend, MacKay Shields LLC, or any of its products or services. Past performance is not indicative of future results. LONDON | NEW YORK | PRINCETON • MacKayShields.com .
And even after the recent rally, prices still reflect a "lower for longer" scenario. The average energy and metals/mining bond now trades at 64 and 71 cents on the dollar, respectively – similar to where they were at the beginning of December 2015. We continue to view commodity credits with a long-term perspective, focusing on their yields compared to the asset coverage. We believe both the fundamentals and value – both absolute and relative - of the US high yield market continue to be strong.
Of the 40 largest issuers in the BofA Merrill Lynch High Yield Bond Index, 35 are publicly traded and have multi-billion equity market caps. As of March 9, the BofA Merrill Lynch High Yield Index had a yield of 8.7%, and its spread of 723bps over Treasuries remains significantly wider than the median of 556bps since the start of 2000. Meanwhile, US and global interest rates remain extremely low (according to Bloomberg, approximately 29% of developed sovereign debt globally has a negative yield). Availability of this document and products and services provided by MacKay Shields may be limited by applicable laws and regulations in certain jurisdictions and this document is provided only for persons to whom this document and the products and services of MacKay Shields may otherwise lawfully be issued or made available. None of the products and services provided by MacKay Shields are offered to any person in any jurisdiction where such offering would be contrary to local law or regulation.
This document is provided for information purposes only. It does not constitute investment advice and should not be construed as an offer to buy securities. The contents of this document have not been reviewed by any regulatory authority in any jurisdiction. Note to European Investors: This document is intended for the use of professional and qualifying investors (as defined in the Alternative Investment Fund Manager’s Directive) only.
Where applicable, this document has been issued by MacKay Shields UK LLP, 200 Aldersgate Street, 13th Floor, London EC1A 4HD, which is authorised and regulated by the UK Financial Conduct Authority (FRN594166). Please note that security specific disclosures are representative and may not be included in your portfolio. This material contains the opinions of the High Yield team of MacKay Shields LLC but not necessarily those of MacKay Shields LLC. The opinions expressed herein are subject to change without notice. This material is distributed for informational purposes only.
Forecasts, estimates, and opinions contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Any forward-looking statements speak only as of the date they are made and MacKay Shields assumes no duty and does not undertake to update forward-looking statements.
No part of this document may be reproduced in any form, or referred to in any other publication, without express written permission of MacKay Shields LLC. ©2015, MacKay Shields LLC. BofA Merrill Lynch, used with permission. BofA Merrill Lynch is licensing the BofA Merrill Lynch indices and related data “as is,” makes no warranties regarding same, does not guarantee the suitability, quality, accuracy, timeliness, and/or completeness of the BofA Merrill Lynch indices or data included in, related to, or derived therefrom, assumes no liability in connection with their use, and does not sponsor, endorse, or recommend, MacKay Shields LLC, or any of its products or services. Past performance is not indicative of future results. LONDON | NEW YORK | PRINCETON • MacKayShields.com .
