This year’s leveraged buyouts (LBOs) are being financed with more debt and include fewer protections for creditors. Regulators, the press and market participants are watching this closely, and so are we. But we don’t think it’s worth losing sleep over—at least not yet.
Posted by Gershon Distenfeld (pictured) and Ivan Rudolph-Shabinsky of AllianceBernstein (NYSE: AB)
Many investors have taken on more risk in their quest for higher returns—especially as signs have pointed to interest rates staying stable until next year. But two key elements are often overlooked: default risk and underwriting standards.
Investors who rush into high-yield bank loans seeking competitive returns might find the yield they chase is hardly worth the pursuit. Loan yields—currently quoted at about 5%—seem attractive at first blush, but we think there’s a lot less here than meets the eye.
The Texas-sized bankruptcy of Energy Future Holdings, formerly known as TXU, may have been one of the more anticipated defaults of the past few years, but investors can still learn a lesson or two from it.
Investors seeking more robust returns in a lower-interest-rate environment often look to high-yield bonds for answers. But it’s critical that they don’t reach too far down the credit spectrum in search of higher yields—as tempting as it may be. (more…)
When the Fed does eventually start raising interest rates, at AllianceBernstein we don’t expect to see bonds experiencing the dire scenarios of 1981 or 1994. Instead, the 2003–2006 period of slow and measured rate normalization seems more likely. But it’s not a perfect match, and we do see some important investment factors to consider. (more…)
In a year when the US Federal Reserve caused jitters over quantitative easing, the US government endured a shutdown and investors shifted focus to equities, it’s no surprise that pure “duration-sensitive” bonds like US Treasuries had negative returns as interest rates spiked. But high yield emerged relatively unscathed, returning over 7% for the year. (more…)
After more than two decades of a fixed-income bull market, 2013 was not a great year for the bond market. Rates bottomed out, many mutual funds had negative returns and bond mutual funds experienced a record $80 billion in redemptions as investors hit the panic button. But it would be foolhardy to assume that 2014 will be a repeat year for fixed income. Rather, the bond market has become more complex and will likely reward those who closely study what worked, what did not and why. (more…)
Ashish Shah (pictured) and Ivan Rudolph-Shabinsky
Investors who chose high-yield bank loans over high-yield bonds earlier this year, expecting to be insulated against rising rates, might be surprised to find that bonds might have worked out better. (more…)
The US Federal Reserve talked in early summer about tapering its quantitative easing plan and raising interest rates—in part to stop investors from chasing yield into the arms of riskier loans. In the high-yield market, however, the conversation had exactly the opposite effect. (more…)