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The Zacks Analyst Blog Highlights:CIT Group, HCA Holdings, SLM Corp., iShares iBoxx $ High Yield Corporate Bd and SPDR Barclays

The Zacks Analyst Blog Highlights:CIT Group, HCA Holdings, SLM Corp., iShares
      iBoxx $ High Yield Corporate Bd and SPDR Barclays High Yield Bond

PR Newswire

CHICAGO, Jan. 22, 2013

CHICAGO, Jan. 22, 2013 /PRNewswire/ --Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include CIT Group Inc. (NYSE:CIT), HCA
Holdings, Inc. (NYSE:HCA), SLM Corporation (Nasdaq:SLM), iShares iBoxx $ High
Yield Corporate Bd (AMEX:HYG) and SPDR Barclays High Yield Bond (AMEX:JNK).

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Here are highlights from Monday's Analyst Blog:

Is the Party Over for Junk Bonds?

High-risk high-yield bonds a.k.a. speculative bonds or junk bonds are those
rated below BBB- by Standard & Poor's rating agency. The default rate for junk
bonds has been low at about 3.2% recently versus the historical norm of 4.5%.
The outlook for the default rate is favorable in the near term.

Junk bonds have boomed following the Fed's decision to continue with its loose
monetary policy with $85 billion in monthly asset purchases. In fact,
quantitative easing, accompanied by rock-bottom interest rates, has been
accused of creating asset bubbles in places such as the treasury bond and the
junk bond markets.

With investors chasing higher yield in the wake of low returns on other
assets, high yield issuers raised a record quantum of debt in 2012. Fund
raising companies have frequently used the proceeds to refinance higher
interest-bearing loans. Some of the money ended up with private equity firms,
such as Bain Capital, who borrow for leveraged buyouts and then burden the
company with debt. In any case, there is no doubt that the boom in junk bonds
has ensured access to capital markets for even those companies with the lowest
credit ratings.

The chase for yield has driven down the yield on junk bonds to record lows. In
fact, the interest in such bonds has been so great that some mutual funds have
even refused to take new investors. Junk bond yields recently fell below 6%
for the first time (giving them about 500 basis points spread over U.S.
Treasury bills). From a historical perspective, junk bond issuers have paid
about 10% in interest charges. (It is noteworthy that while yields may
currently be low, spreads are nowhere near their historical bottom.)

After several years of tidy returns, returns from junk bonds came to over 15%
in 2012. The sharpest appreciation has been in the lowly CCC rated paper. With
good returns in the period following the financial crisis in 2008, market
mavens wonder if there is much room left for capital appreciation or whether
these bonds are to be held as a coupon play only.

Risks to the high yield market include a cyclical rotation into equities,
firmer interest rates or a weaker economy, which would increase corporate
default. Even without any recession, there is risk in the sense that should
earnings take off again, then investors may bail out of debt to enter the
stock market. Furthermore, investors face potential losses in case of callable
bonds.

T. Rowe Price High Yield Fund gave an annual return of 15.2% in 2012 and a
3-year return of 10.8%. Prominent leveraged plays in this fund include CIT
Group Inc. (NYSE:CIT).

The Putnam High Yield Advantage Fund gave an annual return of 15.1% in 2012
and a 3-year return of 10.4%. Noteworthy leveraged plays in this fund include
HCA Holdings, Inc. (NYSE:HCA) and SLM Corporation (Nasdaq:SLM).

Besides high yield mutual funds, investors may also select from the following
two high yield bond ETFs, both of which are well tracked, offer high liquidity
and may be considered to be a proxy for the junk bond market. The iShares
iBoxx $ High Yield Corporate Bd (AMEX:HYG) and SPDR Barclays High Yield Bond
(AMEX:JNK) are well known junk bond ETFs.

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