A surge in U.S. speculative-grade bond yields to the highest level this year makes the debt an attractive investment, according to Andrew Feltus, a money manager at Pioneer Investment Management Inc.
Junk-bond yields have climbed to 6.72 percent as of yesterday, the most since 6.75 percent on Dec. 31 and up from an unprecedented low of 5.9837 percent on May 9, according to the Bank of America Merrill Lynch U.S. High Yield Index. The securities have lost 1.5 percent in June, headed for the worst monthly performance since November 2008 during the financial crisis.
“You put a lot of value back in that market,” Feltus, who helps oversee $35 billion in U.S. fixed income assets and is based in Boston, said today in a Bloomberg Radio interview.
With yields above 6 percent and the extra compensation investors demand above similar-maturity Treasuries at more than 500 basis points, “I look at it as valuations versus fundamentals,” he said. The spread widened to 508 basis points yesterday from 423 basis points on May 10, Bank of America Merrill Lynch index data show. A basis point is 0.01 percentage point.
“With 500 basis points over, you’re getting paid for the risk,” he said. “If I was on the show a month ago, I would be saying this is not the time to be aggressive,” Feltus said. Now “is the time to add some. Not to be massively overweight.”
The rise in bond yields has accelerated since Federal Reserve Chairman Ben S. Bernanke said May 22 that the central bank could reduce $85 billion in monthly Treasury and mortgage debt purchases within “the next few meetings” if officials see signs of sustainable improvement in the labor market.
The Pioneer High Yield Fund which Feltus co-manages has lost 2.7 percent since May 21, according to data compiled by Bloomberg. Junk bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s.