NEW YORK (Reuters) – While stocks hog the limelight with their best January in three decades, another corner of the risk assets marketplace sprang back to life last month after having taken a pounding at the end of last year, though some investors question whether the recovery has legs.
Junk bonds in January delivered their strongest monthly performance in more than seven years with a total return of nearly 4.6 percent, according to ICE BofAML index data, retracing almost all of the fourth quarter’s losses. Issuance of new debt rebounded after a near-complete shutdown in December.
Surge - Stocks - Endorsement - US - Economy
Along with the surge in stocks, it would appear to be an endorsement of a U.S. economy that continues to outperform its global peers, as well as the shift by the Federal Reserve to a wait-and-see posture regarding future interest rate increases.
Companies with risky credit profiles brought $11.7 billion in new high-yield debt to the market in the first month of the year, after a nearly six-week dry spell at the end of 2018. The bounce-back from December has led fund investors to put the most cash into high-yield bonds since 2016, according to Lipper.
Backdrop - Constructive - Gains - Bond - Managers
That backdrop would typically be seen as constructive for more gains. Some big bond managers, however, remain skeptical of the rebound, attributing it more to a clutch of technical factors that will soon peter out than to a lasting improvement in fundamentals.
“We don’t think this is a particularly strong buying opportunity,” said John McClain, portfolio manager at Diamond Hill Capital, anticipating a market correction that will pull prices lower. Strong high-yield gains in January 2018 were more than erased by a volatile February.
December - Deals - Issuance - August - Companies
December saw just $594 million in high-yield deals, the lowest monthly issuance since August 2008. Companies stepped back from raising debt because global macroeconomic trends – such as slowing global...
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