junk bonds will become a haven for bond investors shaken by growing losses in government

junk bonds will become a haven for bond investors shaken by growing losses in government, corporate and municipal debt investment grade.

Gains of 0.8 percent this month in the high performance, high-risk bonds compared with losses of 1.9 percent for Treasuries, 1.5 percent in the notes high society and 1.4 percent of state and local debt, according to data from Bank of America Merrill Lynch index. yields on junk bonds against the highest rated companies fell to 388 basis points, or 3.88 percentage points, a level that has not been violated in three years.

"Junk bonds have benefited greatly by the fact that they are the only place in the world of fixed income can get something nice," said Dan Pastor, director of New York, in the corporate bond Deutsche Bank AG wealth management unit, which helps oversee $ 12 billion.

Bonds borrowers credit card processor First Data Corp. to Camp Hill, Pennsylvania-based Rite Aid Corp. are winning as Pacific Investment Management Co. raised its forecast for U.S. growth next year. Other liabilities fall after President Barack Obama agreed this week to extend the tax cuts adopted under his predecessor and Federal Reserve chairman, Ben S. Bernanke said the central bank could expand purchases of bonds, boosting speculation inflation will accelerate.

"If you have an environment of rising interest rates, that's a great atmosphere of high performance," said Zane Brown, fixed income strategist in Jersey City, New Jersey, Lord Abbett & Co., which manages 53 billion U.S. dollars debt.

Nalco, Seagate

Nalco Co., the largest global provider of industrial water treatment, and the drives manufacturer Seagate Technology Plc was 7.98 billion U.S. dollars of the junk bond-rated U.S. business This week, the most in a month, and 41 percent above the 2010 weekly average of $ 5,650,000,000.

Elsewhere in credit markets, the extra yield investors demand to own corporate bonds rather than similar government debt maturity fell 1 basis point to 171 basis points, compared to this year's high of 201 in June, according to Global Bank of America Merrill Lynch Broad Market Corporate Index. The average yield of 3.936 percent.

The cost of insuring against losses on European government and bank bonds increased the concern of the regional crisis of sovereign debt is not included.

Swaps

The Markit iTraxx Financial index of credit default swaps, linked to the debt of 25 European banks and insurance companies rose 4 basis points to 162, while the index rose 7.5 points to 327 basis subordinates, the highest since April 2009, according to JPMorgan Chase & Co. The Markit iTraxx index SovX Western European bonds sold by 15 governments jumped 7.5 basis points to 196, CMA prices show.

Swaps credit-default tend to fall as improving investor confidence and increasing as it decays, paying 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.

Bonds Fairfield, Connecticut-based General Electric Co. were the most actively traded U.S. corporate securities by dealers, with 143 transactions of $ 1 million or more, according to Trace, the bond information system in the prices of the Financial Industry Regulatory Authority.

The Barclays Capital Global Aggregate Bond Index lost 0.43 percent this month, bringing the gain this year to 3.73 percent.

Leveraged loans

The Standard & Poor's / LSTA U.S. leveraged loan 100 Index rose for a third straight day, rising 0.05 cent to 92.01 cents. Prices in the index, which measures the 100 largest dollar loans first lien leveraged, have fallen 92.72 cents on Nov. 9, the highest since May 3. leveraged loans and junk bonds are rated below Baa3 by Moody's Investors Service or below BBB-by S & P.

Novelis Inc. cut the price of a loan of 1.5 billion U.S. dollars term. The U.S. aluminum unit Hindalco Industries Ltd. of India reduced the loan interest rate to 50 basis points to 375 basis points above the London interbank offer rate, according to a person familiar with the negotiations who requested anonymity because the terms are private. Libor, the rate banks charge to lend to each other, have a floor of 1.5 percent, which is unchanged.

Commercial Paper

The seasonally adjusted market for commercial paper, where companies often borrow money for 270 days or less, contracted for the sixth straight week, falling to 13.4 billion U.S. dollars to 1008 billion in the week ended on 08 December, the Fed said yesterday on its website.

In emerging markets, the extra yield investors demand to own corporate bonds rather than government bond fell 3 basis points to 228 basis points, according to JPMorgan Chase & Co. index data.

The gain of junk bonds brings benefits for the year to 14.1 percent after rising a record 57.5 percent in 2009, according to U.S. Bank America Merrill Lynch High Yield Master II Index. Yields on junk bonds more risky, rated CCC or lower by S & P, have increased this month, gaining 1.9 percent.

Bonds of the Atlanta-based First Data has gained 5.56 percent this month and drugstore chain Rite Aid added 2.65 percent, the index data show.

The difference between spreads on junk and final investment-grade debt was 388 basis points in June 2008 and fell below that level on December 28, 2007, when it was 370 basis points, Bank of America Merrill Lynch show indexes. Was as large as 1531 basis points in December 2008, the credit markets froze after the collapse of Lehman Brothers Holdings Inc.

Garbage Forecast

high-yield debt may return a 6 percent next year, assuming a 75 basis point increase in "risk-free rates," wrote Morgan Stanley analyst Adam Richmond in a report of 08 December. If interest rates remain unchanged, the Bank of New York, believes that speculative-grade bonds earning 9.5 percent.

junk bonds are likely to be the class of fixed income assets with better results next year, said Guy LeBas, chief fixed income strategist and economist at Janney Montgomery Scott LLC in Philadelphia.

"Now we're up to 2010, when yields fall led price increases across the spectrum of bonds, many investors are really looking for the widening of spreads as the only way to get huge returns for 2011," said LeBas . "You just can not get the kind of returns investors are used in the investment grade or Treasury bonds or other products."

Tax cuts

Government bonds fell for a second day after Obama agreed on 6 December to a two-year extension of current tax rates in exchange for another 13 months of federal unemployment insurance for long-term unemployment and reduce payroll tax by $ 120 million a year.

Pimco, which manages the world's biggest bond fund, sees the economy growing by 3 percent to 3.5 percent in the fourth quarter of next year over the same period this year. That compares with its previous estimate of 2 percent to growth of 2.5 percent and 2.2 percent forecast profit for this year by the International Monetary Fund.

"The U.S. is using the fiscal and monetary policy to try to reach the escape velocity for the economy," said CEO Mohamed El-Erian said in a telephone interview from his office in Newport Beach, California. "We do not know if that will still not be enough just to change the trajectory of the economy for a year, but to put on a medium-term sustainable path."

The average yield for the junk debt was 7.93 percent versus 4.12 percent for investment grade bonds and 3.21 percent for Treasury bonds to 10 years.

Sales Surge

sales of speculative-grade debt have soared since the fall to $ 1.56 billion, the lowest in almost three months during the week ended November 26 amid growing investor concern that the crisis Ireland's debt would be extended to other European countries.

The companies are selling bonds to push back the maturity of the debt instead of rewarding shareholders, increasing the attractiveness of junk bonds, said George Goudelias, director of Seix Investment Advisors LLC who co-manages the $ 1,800,000,000 RidgeWorth Seix rate Variable High Income Fund.

"Even in the worst loans out there, everyone has bought time," said Goudelias, who believes that high yield spreads tighten by 50 basis points.