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December 15, 2015 at 09:30 AM
Bill Gross says the selloff in junk bonds is starting to make them look cheap compared with stocks. Going by one widely followed measure, it’s true.
Amid an almost 6 percent selloff in high-yield debt this year, speculative-grade credit is yielding 3.52 percentage points more than stocks in the Standard & Poor’s 500 Index are earning — the widest spread since 2010, according to data compiled by Bloomberg. Since the start of the 6 1/2-year bull market, junk securities have held an advantage of less than half that — 1.36 percent — over equity counterparts, the data show.
Speaking in an interview with CNBC on Monday, Gross, the manager of the $1.3 billion Janus Global Unconstrained Bond Fund, said the junk selloff has made this a “perfect time” to take advantage of an “illiquidity discount” for the securities.
“The junk market is attractive,” said John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York. “The selloff tells me that people are particularly worried about some sort of crisis or meltdown. But the more people worry, the less likely it is to happen, so some investors are viewing this as an ideal entry point.”
