Investor resistance to Triple C risk crumbles

Fri Aug 19, 2016 10:11am EDT
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By Davide Scigliuzzo

NEW YORK, Aug 19 (IFR) - Resistance is futile for some investors eyeing risky Triple C bonds as spreads and absolute returns continue to tighten across the board.

Throughout the year, investors have been wary of paper rated below Double B. But a global chase for yield across fixed-income assets is now starting to erode that reluctance.

The average yield on Triple C paper this week reached 13.83%, according to Bank of America Merrill Lynch data. That is still juicy compared with 4.49% on Double Bs, but is down from a peak of 21.68% reached on February 11.

And Triple C bonds have posted total returns of 25.09% so far this year, compared with 11.79% on Double B rated notes.

"There is a lot of cash coming into high-yield, but you still have asset managers that are a bit concerned about risk," said one leveraged finance banker.

The reluctance to rush into bonds with such low ratings was partly driven by concerns over the outlook of the US economy and losses many funds suffered in their energy portfolios earlier this year as oil sold off.

As markets recovered, the mindset was still to avoid taking too much risk in a rally that many thought would remain fragile.

Issuance of bonds with Triple C ratings is currently running some 60% below last year's level, according to UBS.   Continued...