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Loan dangers: sentiment turns on the fixed-income alternative

by Robert St George on Mar 03, 2014 at 12:49

Todd Youngberg, head of high yield at Aviva Investors, points out that the average price of a high yield bond is now almost 5% above par, limiting the scope for further capital gains.

He adds the global high yield bond market began 2013 with a yield-to-worst of 6.13%, which had slipped to 5.34% by the end of January.

The quality of underwriting is a final issue for Eagan. ‘When there is demand for paper, Wall Street creates it,’ he warns. And this demand for loans, at least partly due to the pursuit of past returns and unattractiveness of traditional fixed income assets, worries him.

‘I see people buying bank loans for the wrong reasons. I wince when I hear why people are buying them.’

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