As central banks slash interest rates to prevent a global economic meltdown, yields on bonds are not really attractive. This could spur demand investor demand for junk bonds in the coming months as traders want higher yields.
So says a new research note from JPMorgan Chase.
Analysts say that there could be just under $33 billion of speculative-grade debt sales over the next two months.
This could rejuvenate the troubled market as high-yield bonds and leveraged loan sales have cratered $26 billion compared to last year at this time.
“The technical conditions are as favourable as we have seen over the past few years,” Kevin Foley, JPMorgan’s head of leveraged finance capital markets, told Bloomberg.
“There are near-term financing requirements and investors certainly have the appetite for these kinds of situations. We’d challenge the view that the market is steering clear of cyclical credits. It’s more a matter of the leverage being appropriate and people being adequately compensated for the risk.”
One ETF that has gotten a lot of coverage as of late is the Xtrackers Low Beta High Yield Bond ETF, which is just 20 months old. It is trading at about $50.
But will the forecasts be correct? Many had anticipated an uptick in Chinese junk bond sales, but foreign investors shunned them, though locals did scoop them up.
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