The cost for high-yield companies to borrow in the bond market is the highest in more than six years -- and that’s a buy signal to AllianceBernstein Holding LP, which sees junk debt outperforming stocks when the market turns around.
Market turmoil is "making people nervous, but that’s a buying opportunity,” Gershon Distenfeld, director of high-yield at AllianceBernstein, a mutual-fund manager with $456 billion in assets, said in a Bloomberg Television interview Tuesday. "Everything is oversold because of the fear of energy. Lower oil prices are very bad for the energy companies, but they are not necessarily bad for the rest of the market."
The yield on U.S. dollar-denominated speculative-grade debt touched 10.17 percent on Feb. 11, the highest since 2009, according to Bank of America Merrill Lynch indexes. That pushed the extra yield that investors demand to hold U.S. corporate high-yield debt over Treasuries, or spread, to the most since 2011. Bonds sold by energy companies lead losses in fixed-income assets this year as oil prices tumbled to a 12-year low.
Global stocks dipped into a bear market last week amid concern the rout in commodity prices will destabilize credit markets and saddle banks with losses. The MSCI ACWI Index, which includes both emerging- and developed-market equities, has dropped 9 percent this year, while high-yield bonds worldwide have fallen 4 percent, as shown in a Bank of America Merrill Lynch index.
Distenfeld’s view on the credit market echoed those of Goldman Sachs Group Inc. and Pacific Investment Management Co.
Philip Moffitt, Goldman Sachs Asset Management’s Asia-Pacific head of fixed income, said the worst of the selloff is probably over and he will look to get back into U.S. junk bonds and other corporate debt when signs of stabilization emerge. Pimco’s global head of corporate-bond and portfolio management, Mark Kiesel, said current valuations for company notes are “compelling."
Speculative-grade debt isn’t as volatile as equities and now offers starting yields of about 8.5 percent, excluding the commodity sector, AllianceBernstein’s Distenfeld said.
"We actually have a pretty good year in high yield, if you are framing it against the equity market," Distenfeld said. "I don’t know what returns are going to be over the next six months or a year. I feel pretty good they are going to be high single-digits annualized over the next five years."