Bloomberg
Bond Investors Take Ever-Riskier Bets in Hunt for Returns
(Bloomberg) — Bond investors, emboldened by a recovering economy and a global vaccine rollout, are taking on more risk, sometimes a lot more risk.Insurers, pension systems and high-grade credit managers in the U.S. and Europe are buying bigger amounts of junk-rated debt to offset shrinking yields, forcing high-yield investors to jostle for allocations of BB rated bonds — the safest and largest part of their class with 60% of the market. Some fund managers, used to having their pick of speculative-grade bonds, have seen their orders for new bonds cut in recent months, they said, declining to be identified because the information is private. One high-yield fund manager said his orders have been scaled back by as much as 15%.The soaring demand has reduced yields to record lows, pushing investors into the chancier subordinated parts of a company’s capital structure. It’s a bonanza for companies seeking to raise cash, with borrowing costs dropping and even the highest risk ones able to get a loan and sometimes increase the size of their sale.“The market’s running hot, and that’s forcing investors to look more broadly at opportunities because of how tight things have been squeezed to,” said John Cortese, co-head of U.S. credit trading at Barclays Plc in New York. “The traditional high-yield investor that’s wanted to get paid 5%-7% yield is looking at higher-yielding parts of credit markets,”…
