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August 17, 2017 at 11:17 AM
Investors overseeing about $1.1 trillion have been cutting exposure to the world’s riskiest corporate debt as rates grind too low to compensate for potential risks.
(Related: ‘Curb Your Enthusiasm’ for High Yield, RBC Strategist Says)
Even after a selloff last week amid rising tensions between the U.S. and North Korea, a Bloomberg Barclays index of global junk bonds still yields 5.3%, 100 basis points below the average for the past five years.
(Related: Bond ETFs Are Hotter Than They’ve Ever Been)
High-yield corporate debt has been one of the biggest beneficiaries of central stimulus, which has compressed spreads in better-quality bonds, forcing investors to seek returns elsewhere. The danger now is that higher Federal Reserve interest rates and the European Central Bank tapering will reverse the trend.
(Related: Gundlach, Wary of Pricey Market, Sets Cap on DoubleLine’s Growth)
Here’s the list of money managers who have recently cut holdings of junk debt:
JPMorgan Asset Management
AUM: $17 billion (for Absolute Return & Opportunistic Fixed-Income team)
In early July told Bloomberg they have cut holdings of junk debt to about 40% from more than half. “We are more likely to decrease risk rather than increase risk due to valuations,” New York-based portfolio manager Daniel Goldberg said.
DoubleLine Capital LP
AUM: about $110 billion
Jeffrey Gundlach, co-founder and chief executive officer, said in an interview published Aug. 8 he’s reducing holdings in junk bonds and emerging-market debt and investing more in higher-quality credits with less sensitivity to rising interest rates. European high-yield bonds have hit “wack-o season,” Gundlach said in a tweet last week.
