This trashy asset class can take a lot more pain, says fund manager – CNET – ApparelGeek

Few assets have been immune to the financial market punches this year, and junk bonds have also been pretty, well, trashy. Since the beginning of the year, the SPDR Bloomberg High Yield Bond ETF JNK,
lost 16%, which is sure to be the worst performance since the 2008 financial crisis. Its spread to Treasuries has now exceeded 500 basis points for the first time since November 2020.

But what that means is that high yields are now, if not historically high, at 8.4%. Only twice in the past 30 years have yields risen this quickly, according to data from Boston-based value fund manager GMO.

Rachna Ramachandran, a researcher at GMO, points out that the higher yield means the asset class can absorb a lot more bad news. An 8.4% annual return can absorb a 12% default rate over the next 12 months, which is a significant jump given that the previous year’s default rate was around 1%. “While that’s likely to increase over the next few months, hitting a double-digit default rate would require a large credit shock quickly,” she says. Last month, S&P predicted that the default rate for speculative companies could reach 3% by 2023.

That’s not to say yields couldn’t rise further. But, she says, yields are expected to rise nearly 100 basis points over the next 6 months, or more than 195 basis points over the next 12 months, before an investment is now underwater. .

Historically, at these yields, 12-month returns have been attractive. The only time they weren’t was during the global financial crisis. Which is another way of saying that in the absence of a deep recession, high yield bonds now have a favorable risk/reward profile, she says.

The buzz

The quadruple witchcraft – the expiration of index futures and options, as well as options and single stock futures – takes place on Friday.

Not only did the Bank of Japan not raise interest rates on Friday, but it reaffirmed its guidance on controlling yields. The US dollar USDJPY,
surged against the yen, although the central bank said it would closely monitor the impact of exchange rate fluctuations on the Japanese economy.

Federal Reserve Chairman Jerome Powell is due to deliver a welcome speech at a conference on the international role of the US dollar. Data on industrial production and leading indicators must be published.

Adobe ADBE,
equities issued weaker-than-expected forecasts for the quarter ending August.

According to the New York Times, SpaceX fired employees who helped write a letter criticizing the behavior of CEO Elon Musk, who also runs Tesla TSLA,
and try to buy Twitter TWTR,

The European Union has recommended that Ukraine be granted candidate status.

The market
This trashy asset class can take a lot more pain

After the industrialists of the Dow DJIA,
Thursday fell below the key 30,000 level, US stock futures ES00,

pointed to a brighter start.

The 10-year Treasury yield TMUBMUSD10Y,
slipped again, to 3.22%. CL.1 Oil Futures Contracts,
pink, and bitcoin BTCUSD,
was trading above $20,000.

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Random plays

Delta Air Lines DAL,
refuses customers who come to its salons too early.

An 18th-century cockroach has been discovered in the ledger of a slave-trading ship.

Ukrainian farmers trick Russian troops with poison cherries.

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This trashy asset class can take a lot more pain, says fund manager – CNET – ApparelGeek

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