Don’t get rid of your junk bonds yet
While horror stories about high-yield bonds may be in the headlines these days, you should not get rid of these funds quite yet. The worries about hedge fund meltdowns and too many of them in existence as well as the history of tight spreads is not going to take down these high yield bonds.
In fact, all of this attention has actually caused spreads to widen just enough for them to be able to give portfolio managers some “breathing room” so that they can earn them money in the second half. While this range is still tight it is a lot more comfortable than it has been Of course, other hedge funds are going to step up and announce similar problems. However, the crisis should not spill over into equities and they also should not severely damage high-yield bonds. Sellers are not going to be stirred by the rash of junk-bond funded leverage buyouts. In fact, the tidal wave of private-equity deals are merely “speed bumps” that will test people but if you are patient, you will come through this just fine.