Hunt for Yield Leads to Less-Liquid Debt, Ramius’s Strauss Says

Treasury yields driven to almost record lows by global central-bank intervention means less-liquid debt in the corporate and real-estate sectors may offer better returns this year, according to Thomas Strauss, chairman of Ramius LLC.

“The clamor for liquidity has had a dramatic impact,” Strauss said today during the Bloomberg Global Markets Summit in New York. “If you look at the spread compression of liquid securities against Treasuries, it’s been dramatic. If you look at less-liquid products -- debt origination on the corporate and real-estate side -- the spread compression is almost negligible.”

Central banks from the Federal Reserve to the European Central Bank and the Bank of Japan have kept interest rates at record lows since the start of the financial crisis while adding monetary stimulus to support their economies. This has sent government debt to all-time low yields, with the benchmark U.S. 10-year note touching a record 1.379 percent in July.

The impact has been felt less in real-estate loans, debt origination in the corporate sector and other less-liquid debt products, Strauss said. This makes them more attractive relative to the risk they offer, he said.

Investors can expect returns of around 10 percent from the less-liquid securities, Strauss said, as financing for these debt products has shrunk, forcing issuers to offer more yield.

“There has been a substantial diminution of capital to finance these one-off transactions,” he said, “and we don’t see that changing at all.”

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