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Archive for the ‘High-Yield’ Category

High-Yield Bond Funds: Increasing Blood in the Water

As reported by Bloomberg on December 13, 2015 (“Investors See Third Avenue Fueling More Bond Market Carnage”), “top bond managers are predicting more carnage for high-yield investors amid a market rout that forced at least three credit funds in the past week to wind down.”

The three bond funds that suffered losses within the past week include the Third Avenue Focused Credit Fund (which has announced the suspension of investor redemptions from its $788.5 million mutual fund), Stone Lion Capital Partners (which has announced the similar suspension of investor redemptions from its $400 million fund) and Lucidus Capital Partners (which has announced the liquidation of its $900 million portfolio).

Some Wall Street experts, including Jeffrey Gundlach, Carl Icahn, Bill Gross and Wilbur Ross, are predicting that an increasing percentage of high-yield funds may face a high level of withdrawal requests as more and more investors become concerned about the ability to get their funds back.

The root of the problem facing many high-yield funds appears to be the valuations of the securities that are held in their portfolios – securities that are valued based on the estimates of their portfolio managers that have no basis in fact or reality when those securities are later attempted to be sold. This forces a fire-sale of the securities at prices that are significantly below what they are being carried on the books of the funds at which then leads to the inability of those funds to meet investor redemption requests.

If you are an individual or institutional investor who has any concerns about your investment in the high-yield bond funds, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

High-Yield Investors Suffer Bond Fund Losses

The U.S. High-Yield bond rout deepened Monday, with the bonds of dozens of low-rated companies falling anew and the shares of some large fund-management firms tumbling as well.

Investors are rushing out of junk bonds, spooked by last week’s closure of a mutual fund focused on some of the lowest-quality, highest-yielding bonds. The shutdown comes on top of fears that a spike in bond defaults is coming, and it’s led investors to rush for the exits in a corner of the market that generally doesn’t handle such things well.

The price drops are hitting many investors who are new to junk bonds and have little experience with the notoriously volatile market. Since the Federal Reserve slashed interest rates to a record low in 2008, investors have been creeping into ever-riskier options in search of more income.

In just two days, the central bank is widely expected to finally raise rates above their emergency low levels. The policy has helped avert a deeper downturn following the financial crisis, but critics say it’s also spread hidden risks throughout the financial system by making investors cavalier.

The declines reflected gathering concerns about risky companies’ access to financing, traders’ capacity to sell bonds without causing prices to fall, and ripple effects from the closure of a junk-bond mutual fund. Together, the concerns are feeding investor fears that the U.S. mutual-fund industry could face outflows that will test funds’ capacity to meet investor redemption requests.

The iShares iBoxx $ High Yield Corporate Bond exchange-traded fund, the largest junk-bond ETF by assets, was down about 1.5% Monday, after shedding 2% on Friday in its worst plunge since 2011, to trade at $78.34 a share.

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