High-Yield Bond Drop May Offer Long-Term Value, Wells Patel Says

A drop in U.S. high-yield bonds to a 12-month low last month may spell value, according to Margie Patel, a money manager at Wells Capital Management Inc.

“High-yield with this correction is actually very attractive for long-term investors,” Boston-based Patel said today in an interview on Bloomberg Radio’s “Surveillance” with Tom Keene and Michael McKee.

Yields on junk-rated debt have risen to their highest levels this year after Federal Reserve Chairman Ben. S. Bernanke said June 19 the central bank may begin reducing its $85 billion in monthly bond purchases this year, marking a slowdown in stimulus measures that pushed investors into riskier assets and sent yields to unprecedented lows.

The average price on dollar-denominated high-yield debt fell to 100.5 cents on June 25, the lowest since 100.47 cents on June 30 2012, before reaching 101.47 cents on June 30, according to the Bank of America Merrill Lynch U.S. High Yield index. Prices have decreased from a record high of 107.22 cents on May 9.

The price adjustment was “much more than the correction in equities,” Patel said. The Standard & Poor’s 500 Index (SPX) fell to a nine-week low of 1,573.09 on June 24, down from an all-time high of 1,669.16 on May 21, according to data compiled by Bloomberg.

The extra yield investors demand to own speculative-grade corporate debt rather than government debentures reached 521 basis points on June 30, up from 423 basis points on May 10, Bank of America Merrill Lynch index data show. Yields reached 7 percent on June 30, up from a record low 5.98 percent on May 9.

To contact the reporters on this story: Jeff Marshall in New York at Jmarshall75@bloomberg.net; Sarika Gangar in New York at sgangar@bloomberg.net

To contact the editors responsible for this story Alan Goldstein at agoldstein5@bloomberg.net; Dave Liedtka at dliedtka@bloomberg.net

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