BlackRock Shifts To Recommending Junk Bonds
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Monday, July 08, 2013

BlackRock Shifts To Recommending Junk Bonds

Michael Aneiro of Barrons reported on BlackRock's new shift away from bank loans toward recommending junk bonds. BlackRock's[profile] July fixed income report highlighted the fact that high yield bond yields are 200 basis points higher than two months ago while loan yields, their previous darlings, remain the same.

Though loans can provide protection from rising interest rates, what you get in the short run is different. Jeffrey Rosenburg, BlackRock's chief fixed-income investment strategist said:
Today you get a lot of credit risk for less reward than can be found in bonds. Admittedly this recommendation might be early as investors chase the better performance of loans, but we would start scaling out of loan funds and back into high yield bonds for the higher risk income segment of fixed income portfolios.
Rosenburg asserts that investors have to change their assumptions from a low interest rate reality to a "normalized" interest rate reality:
Where investors expect zero risk-free interest rates forever, taking greater investment risk was the only way to protect savings from inflation and to earn a decent level of income…The prospect of normalizing interest rates reduces the attractiveness of “reaching for yield."
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