High-Yield Apocalypse? Not Now

[Stocks-to-Watch]

With The New York Times’s Nelson Schwartz warning today of a kind of apocolypse in corporate credit — $700 billion in high-yield debt coming due in 2012 — it was interesting to chat this afternoon with John Canally, an investment strategist at LPL Financial, who’s bullish on high yield.

“From $21 billion due this year, junk bonds are set to mature at a rate of $155 billion in 2012, $212 billion in 2013 and $338 billion in 2014,” writes Schwartz.

But, “We think high yields are one of the best prospects this year, as the market has probably reached a top at 1,200 [on the S&P], and what you’ll get all year is a lot of volatility,” says Canally. “You want to look for income or for predictable returns, and high-yields offer the best coupon you’re going to get.

Spreads on high yields are contracting, which is dimming their appeal for some, but with the average coupon above 8%, the return over Treasuries will continue to be pretty ample, even if the Fed raises rates later this year, observes Canally.

One odd point about Schwartz’s article: it appears he plays down the threat of commercial mortgages, writing that securitized commercial loans coming due “doubling in the next three years, hitting $59.7 billion in 2012.”

But we know that the Congressional Oversight Panel monitoring the TARP bailout has warned that $1.4 trillion of commercial real estate loans are coming due between now and 2014.



Original Article Source by Barrons.com