yields on junk bonds fell to a three-year low as investors gained confidence in the efforts of s Federal Reserve, Ben S. Bernanke, "to stimulate the economy.
The extra yield investors demand to own high-risk debt instead of government bonds has fallen 82 basis points this month to 540 basis points, or 5.4 percentage points, the lowest since November 16, 2007, from According to U.S. Bank of America Merrill Lynch High-Yield Master II index.
Goldman Sachs Group Inc. and JPMorgan Chase & Co. are advising clients to buy speculative-grade debt in 2011, even after gains of 14 percent this year and a record 57.5 percent in 2009. Economists are driving growth forecasts after President Barack Obama agreed to extend the tax cuts enacted by his predecessor and that Bernanke is to reduce unemployment and prevent deflation by buying Treasuries.
"We will start taking more risks as we move into next year because the economic fundamentals are better," said Thomas Reilly, managing director at Neuberger Berman in Chicago LLC debt, which oversees $ 11 billion in bonds trash.
Spreads on high yield debt have narrowed to 187 basis points from the year high on June 11, according to data from Bank of America Merrill Lynch index. The higher level of risk has been reduced to a minimum this month, falling 122 basis points to 906, according to U.S. The high performance of the bank, the CCC and lower rated index. investment grade bonds have dropped 13 basis points to 169.
Swaps streak ends
"The sweet spot is a high performance," said Alberto Gallo, credit strategist at Goldman Sachs in New York, who favors bonds rated B. "You want to win as exposure as possible dissemination, and you want to reduce the rate, which is what you get with high performance."
Elsewhere in credit markets, spreads on corporate bonds worldwide were unchanged at 171 basis points, according to Bank of America Merrill Lynch Global Broad Market Corporate Index. The average yield of 4.04 percent, the highest since June 21, while emerging market spreads rose 7 basis points, most of this month, to 226, JPMorgan indexes show.
Swaps credit-default secure U.S. corporate bonds rose, breaking the biggest drop in four years, while contracts of BP Plc rose after the U.S. filed a lawsuit over oil spill in the Gulf of Mexico. First Horizon National Corp. and Huntington Bancshares Inc. sells the debt to help the return of funds from a bailout program.
U.S. Swaps
The Markit CDX North America Investment Grade Index, which investors use to cover losses on corporate debt or to speculate on creditworthiness, up 1.1 basis points to 87,125 basis points in New York yesterday, according to Markit Group Ltd . The index, which usually rises as investor confidence deteriorates and falls as it improves, fell for 10 consecutive trading days December 14, the longest streak since the period ended October 26, 2006.
Swaps credit-default linked to the BP bonds rose 18 basis points to 101, compared to a record closing price of 594.5 basis points on June 29, according to CMA.
The protection of sovereign debt swaps China fell 2 basis points to 66 and contracts in Hong Kong stood at 44.5 after Standard & Poor's raised its credit rating.
S & P China improved by one notch to AA-, the fourth-highest ranking, citing its "substantial" foreign reserves and strong fiscal position. The ratings company based in New York Hong Kong raised rating to a top AAA.
Spanish auction
Contracts in Spain rose 3 basis points to 321 after borrowing costs in the nation grew at an auction of 2.4 billion euros ($ 3,200,000,000) of 10 - and 15-year bonds. That's still more than 40 basis points from the record closing price of 364 reached on November 30, CMA prices show.
Spain sold € 1780000000 debt to 10 years with an average yield of 5.446 percent today, compared with a yield of 4.615 percent for the last time the bond was sold on 18 November. The government also auctioned 15-year bonds at an average rate of 5.953 percent, compared with 4541 percent in the October sale.
Swaps credit-default pay the buyer face value if a borrower defaults on its obligations, less the value of the defaulted debt. A basis point equals $ 1,000 annually on a contract protecting $ 10 million of debt.
Regional Banks First Horizon and Huntington Bancshares issued a total of $ 800 million debt to help pay off loans of 700 billion in Treasury Issues of Asset Relief Program. First Horizon, the Tennessee-based bank chartered in 1864, sold $ 500 million over five years of holding company senior notes in a bid increased from $ 400 million. Columbus, Ohio-based Huntington issued $ 300 million subordinated debt of 7 percent.
TARP
Tenders for sale of shares followed by banks, also scheduled for the payment of TARP. The Treasury approved the program in October 2008 to avoid a collapse of the U.S. financial system. Some receivers, like New York, Goldman Sachs and Bank of America Corp. in Charlotte, North Carolina, have returned the money.
U.S. investors retired $ 401,000,000 of taxable bond mutual funds in the week ending December 8, the first net withdrawal in two years, according to data released yesterday by the Investment Company Institute, the trade group based in Washington for the industry mutual funds. The yield on the benchmark 10-year Treasury has risen more than 04 percentage points since November, the day after the Fed announced its program to repurchase assets.
S & P said it may downgrade 1,196 residential mortgage-related securities of U.S. after "incorrectly analyzed" the payment of interest on structured debt.
Re-Remics
The residential mortgage bonds S & P corrected was created especially this year in 129 transactions called re-remics, formed by the repackaging of existing securities backed by home loans, the New York rating firm, said yesterday a statement.
Ed Sweeney, a spokesman for S & P, declined to comment and do not respond to an emailed question on the capital balances of the securities under consideration.
More than $ 85 billion back to remics have been published since the beginning of last year, as the bondholders and Wall Street firms fell transformed from securities lending for housing, debt, some of whom received the best scores for the ratings companies, according to a report of 07 December, Austin, Texas, based in Amherst Securities Group.
Unwanted returns
While JPMorgan and Goldman Sachs say that investors should "overweight" high yield bonds, which differ in terms of risks to take. Corporate bonds rated B are offering the best performance for the amount of risk taken and is likely to gain 9.5 percent in 2011, Goldman Sachs said on 03 December in a research report.
JP Morgan said investors should "overweight" CCC rated securities as the economy grows faster than expected, the Bank of New York, Peter Acciavatti wrote 8 December in a report. In general, high yield bonds returned 9.8 percent, he wrote.
Production factories, mines and utilities rose 0.4 percent last month, the biggest increase since July, after falling 0.2 percent revised in October, a Fed report showed yesterday. The U.S. economy grow by 2.55 percent in 2011 after growing 2.8 percent this year, according to the median forecast of economists surveyed by us.
Cutting the fiscal stimulus can stimulate U.S. growth by 1 percentage point to 3 percent, Michael Cloherty, head of U.S. rates strategy RBC Capital Markets LLC wrote on December 9 in a research report. JP Morgan raised its forecast for gross domestic product in the first half of 2011 to 3.8 percent from 2.8 percent, chief economist Bruce Kasman said Dec. 10.
Tax cuts
The U.S. Senate approved a plan of 858 billion U.S. dollars of tax cut yesterday, giving bipartisan support for the agreement between Obama and the Republicans that would extend the tax deduction for all income levels.
Fed officials said on 14 December its plan to buy up to $ 600 billion in treasury bonds to stimulate the economy in a process known as quantitative easing, or the Queen Elizabeth 2. The U.S. central bank has kept its benchmark rate in a range from zero to 0.25 percent for two years.
"No doubt in my mind, QE2 is working," said Scott Minerd, chief investment officer at Guggenheim Partners LLC, in Santa Monica, California, where he oversees more than $ 100 billion. "As the availability of credit continues to increase as a result of monetary expansion, prices of high performance relative to other assets should continue to increase. And that makes high performance of a safer place to be."
Yields on Treasury bonds rose to 3.53 percent yesterday, the highest since May. U.S. government bonds lost 2.84 percent in December, prepared for the worst monthly decline since January 2009, according to U.S. Bank America Merrill Lynch Treasury Master Index.
Inflation hedge
junk bond investors should help protect against losses resulting from rising interest rates and inflation, "said Lucette Yvernault, who helps oversee the equivalent of about 7 million euros ($ 9,300,000,000) as fund manager Schroders Investment Management Ltd. in London. U.S. bonds investment grade have lost 2.57 percent this month, the most since October 2008, while the junk debt returned 0.84 percent, Bank of America Merrill Lynch index data show.
"Inflation protection is a great strategy if it is still cheap," he said.
Total change money managers, hedge funds and trading desks are the property of "impatience" to increase their exposure to credit risk across asset classes, Ken Hackel, head of product strategy for the securitization of CRT Capital Group LLC in Stamford, Connecticut, wrote in a Dec. 15 note.
'Against Fear greed "
"Frankly, we are somewhat surprised by the strength of conviction that is expressed," he wrote. "The driving force may well be an investor to be with too much money and struggling to establish for the year 2012, but the fear before-greed pendulum is clearly swinging motion to the right, without visible signs of investment short term. "
The U.S. default rate for rated junk debt is expected to fall to 2.2 percent by this time next year from 3.6 percent in October, Moody's said in a report.
The high-yield bonds returned about 7 percent to 12 percent in 2011 as defaults are "almost zero" for the coming years, Neuberger said O'Reilly, who in the past 13 years has owned a Security in default.
Minerd Guggenheim is the addition of junk bonds, focusing on those with grades B in the 7 - to 10-year range that produce more than 10 percent, and short-term notes to pay at least 6 percent.
"The momentum of the economy is very strong," said Minerd. "We hope next year will be one of the best for the economy we've seen in the last 10 years."
