BL: High-risk junk bonds lose $35bn in worst start ever
By Caroline Salas
Wednesday March 26 2008
High-yield, high-risk bonds are off to their worst start ever, and the biggest investors say there's no recovery in sight.
Junk bonds have fallen an average 3.9pc this year, losing about $35bn, according to data from Merrill Lynch & Co indexes. Some funds managed by John Hancock Advisers LLC, OppenheimerFunds Inc and Fidelity Investments are down more than 7pc, showing that even the largest investors were caught off guard by the collapse.
While the Federal Reserve has slashed benchmark interest rates by three percentage points since September, it has been unable to get investors to increase their purchases of the riskiest assets.
The declines are choking off financing for speculative- grade companies, boosting defaults.
The debt is likely to "struggle'' for months as the economy enters a recession, according to JPMorgan Securities Inc.
Vicious
"The moves have been absolutely vicious," said Arthur Calavritinos, whose $1.2bn John Hancock High Yield Fund has lost about 9.8pc since December. The Boston-based manager said it's the worst market since he started in finance in 1985.
Just 11 companies have issued $9bn of junk bonds in the US in 2008, according to data compiled by Bloomberg.
This time last year, 83 had sold $39.5bn. Junk bonds are rated below Baa3 by Moody's Investors Service and lower than BBB- by Standard & Poor's.
The slump is hurting more companies than ever before. Some 51pc of US corporate borrowers are rated below investment grade, up from 28pc in 1992, according to S&P.
And about $1 trillion of the debt is outstanding, compared with less than $10bn 30 years ago. (Bloomberg)
- Caroline Salas
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