Japanese Aren’t Alone Seeking Yield as BlackRock Sees Junk Rally

Japanese debt investors aren’t the only ones hunting for yield. Americans are doing it, too, sending junk bonds surging past U.S. stocks this year.

Dollar-denominated high-yield securities have returned 3.7 percent in 2015, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index gained 2.1 percent, including reinvested dividends.

“There’s been tremendous inflow into high yield” over the past few months, said Rick Rieder, chief investment officer of fundamental fixed income at New York-based BlackRock Inc., the world’s biggest money manager. “We live in a world where everybody’s been trying to get yield into their portfolios.”

With Treasuries paying 1.36 percent in interest on average, investors willing to take the extra risk in high-yield bonds can earn 6.27 percent, data compiled by Bloomberg show. Part of the reason government bonds pay so little is that they’re in high demand from Japan, where investors in 10-year bonds earn 0.355 percent, and from Europe, where the figure for same-maturity German debt is 0.16 percent.

Junk bonds are high-risk, high-yield securities rated below Baa3 by Moody’s Investors Service and less than BBB- by Standard & Poor’s.

Jeffrey Gundlach, chief investment officer at DoubleLine Capital LP in Los Angeles, said this week that his company is increasing its weighting in high-yield bonds. The securities are “fairly valued,” he said in a webcast.

Energy Junk

A weak spot that turned into an opportunity is debt issued by energy companies. An index of the securities fell 7.4 percent in 2014, based on Bank of America Corp. data, as crude oil plunged 46 percent.

Bonds in the index have rallied back 4.2 percent in 2015, beating the broader high-yield market and shares. The S&P 500 index of energy shares is little changed.

“Money is definitely coming in” to support energy bonds, BlackRock’s Rieder said. “There are not that many opportunities, particularly in fixed income. Anytime you think there’s an opportunity, money comes in in pretty good size.”

One way individuals can invest in high-yield bonds is through exchange-traded funds.

The listed bond fund that has drawn the most money in April is the iShares iBoxx $ High Yield Corporate Bond ETF, data compiled by Bloomberg show. It has grown about 4 percent this month and returned 2.9 percent in 2015.

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