Halister News

(Bloomberg) -- U.S. high-yield corporate bonds have become “a bit of a safe haven” despite their sub-investment grade ratings, as the combination of appealing credit spreads and resilience of the world’s largest economy attracts domestic and foreign investors, Michael Collins, senior investment officer at Prudential Fixed Income in Newark, says in interview with Bloomberg Brief.

• Brexit has further buoyed appeal of U.S. high-yield debt to a lot of investors who are reducing exposure to Europe, Collins says in July 29 interview
  • U.S. macro outlook positive for the market in context of struggling developing markets
  • Anemic global economic growth outlook will cap potential for Fed to raise U.S. interest rates; sees perhaps maximum two (25bps) increases over coming year
• Favors exposure to U.S. consumer sectors, notwithstanding broad market susceptibility to oil price volatility
  • Non-commodity sectors look cheap; commodity sectors possibly still a little overvalued
• Within HY, now recommending an up-in-quality bias; crowding out from ECB CSPP into HY space should benefit BB debt
  • Sees value in 7y, 10y BB bonds; spread compression potential
• U.S. HY spreads look fairly valued relative to current 5%-6% running default rate
• A flat earnings outlook could create a tough environment for HY companies, making it more difficult for them to meet debt service obligations
  • May result in slower debt issuance going forward