7% Yield on High Yield Corporate > EM Debt

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watchnerd
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7% Yield on High Yield Corporate > EM Debt

Post by watchnerd » Tue Mar 24, 2020 1:32 pm

VWEAX is showing a 30 Day SEC yield of 7%.

https://investor.vanguard.com/mutual-fu ... file/VWEAX

This is higher than the 5.37% for USD-denominated Emerging Market government debt:

https://investor.vanguard.com/mutual-fu ... file/vgavx

I find it incredibly interesting the the market is rating us corporate junk as riskier than emerging market government debt.

Top 5 holdings of each:

BOA-MTG TRIPARTY REPO
Sprint Corp.
CRC Escrow Issuer LLC / CRC Finco Inc.
TD TRIPARTY MORTGAGE
RBC TRIPARTY MTGE

vs

Qatar Government International Bond
Petroleos Mexicanos
Kingdom of Saudi Arabia
State of Qatar
Petroleos Mexicanos

Or, more specifically, US mortgage backed debt vs foreign governments.
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by restingonmylaurels » Tue Mar 24, 2020 2:38 pm

watchnerd wrote:
Tue Mar 24, 2020 1:32 pm
VWEAX is showing a 30 Day SEC yield of 7%.

https://investor.vanguard.com/mutual-fu ... file/VWEAX

This is higher than the 5.37% for USD-denominated Emerging Market government debt:

https://investor.vanguard.com/mutual-fu ... file/vgavx

I find it incredibly interesting the the market is rating us corporate junk as riskier than emerging market government debt.

Top 5 holdings of each:

BOA-MTG TRIPARTY REPO
Sprint Corp.
CRC Escrow Issuer LLC / CRC Finco Inc.
TD TRIPARTY MORTGAGE
RBC TRIPARTY MTGE

vs

Qatar Government International Bond
Petroleos Mexicanos
Kingdom of Saudi Arabia
State of Qatar
Petroleos Mexicanos

Or, more specifically, US mortgage backed debt vs foreign governments.
You probably not getting many comments because most BHers would not deign to hold these funds.

I actually own both and have watched the yields on these two funds for years.

At the end of the day, those governments can guarantee repayment in various ways but the companies issuing junk bonds, outside of a new Fed mandate, are left to their own devices, so does it not seem that the non-investment grade corporates should command a larger credit spread?

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by watchnerd » Tue Mar 24, 2020 2:41 pm

restingonmylaurels wrote:
Tue Mar 24, 2020 2:38 pm

You probably not getting many comments because most BHers would not deign to hold these funds.

I actually own both and have watched the yields on these two funds for years.

At the end of the day, those governments can guarantee repayment in various ways but the companies issuing junk bonds, outside of a new Fed mandate, are left to their own devices, so does it not seem that the non-investment grade corporates should command a larger credit spread?
Oh, it's rational.

I think it's just fascinating how much this has shifted in the last 30-60 days.

Junk wasn't yielding higher than EM debt a few months ago.
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Re: 7% Yield on High Yield Corporate > EM Debt

Post by restingonmylaurels » Tue Mar 24, 2020 2:59 pm

watchnerd wrote:
Tue Mar 24, 2020 2:41 pm
restingonmylaurels wrote:
Tue Mar 24, 2020 2:38 pm

You probably not getting many comments because most BHers would not deign to hold these funds.

I actually own both and have watched the yields on these two funds for years.

At the end of the day, those governments can guarantee repayment in various ways but the companies issuing junk bonds, outside of a new Fed mandate, are left to their own devices, so does it not seem that the non-investment grade corporates should command a larger credit spread?
Oh, it's rational.

I think it's just fascinating how much this has shifted in the last 30-60 days.

Junk wasn't yielding higher than EM debt a few months ago.
Yes, you are right, much has gone upside down in recent months.

BTW, I hope things are not going too bad in Seattle these days. I know it well.
Last edited by restingonmylaurels on Tue Mar 24, 2020 3:21 pm, edited 1 time in total.

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by Kenkat » Tue Mar 24, 2020 3:03 pm

Luckily, if the economy recovers some and people start feeling better about things, we can look forward to posters asking if it’s a good time to buy high yield bond funds because look at that great yield.

Full disclosure, 10% of my bond allocation is in high yield bonds. It was 15% last month! BaBop! I’m here all week folks... :wink:

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by watchnerd » Tue Mar 24, 2020 3:06 pm

Kenkat wrote:
Tue Mar 24, 2020 3:03 pm
Luckily, if the economy recovers some and people start feeling better about things, we can look forward to posters asking if it’s a good time to buy high yield bond funds because look at that great yield.

Full disclosure, 10% of my bond allocation is in high yield bonds. It was 15% last month! BaBop! I’m here all week folks... :wink:
BADA BING!

At these prices, I'm almost tempted to violate my IPS.
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Re: 7% Yield on High Yield Corporate > EM Debt

Post by mptfan » Tue Mar 24, 2020 3:06 pm

restingonmylaurels wrote:
Tue Mar 24, 2020 2:38 pm
You probably not getting many comments because most BHers would not deign to hold these funds.
That's not true, I think VWEAX is a good fund and I hold high yield bonds.

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by restingonmylaurels » Tue Mar 24, 2020 3:17 pm

Kenkat wrote:
Tue Mar 24, 2020 3:03 pm
Luckily, if the economy recovers some and people start feeling better about things, we can look forward to posters asking if it’s a good time to buy high yield bond funds because look at that great yield.

Full disclosure, 10% of my bond allocation is in high yield bonds. It was 15% last month! BaBop! I’m here all week folks... :wink:
I am not sure I can calculate it easily with all of recent gyrations, but before this recent trauma, it was probably about 10% of my bond allocation.

That was before I hived off a further 10% (it was 20%) to put it into emerging markets bonds!!

Both will be much higher after today's market action (and down again probably tomorrow and the day after that).

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by restingonmylaurels » Tue Mar 24, 2020 3:19 pm

mptfan wrote:
Tue Mar 24, 2020 3:06 pm
restingonmylaurels wrote:
Tue Mar 24, 2020 2:38 pm
You probably not getting many comments because most BHers would not deign to hold these funds.
That's not true, I think VWEAX is a good fund and I hold high yield bonds.
That is great to hear, I thought I was the only one, now I find there are at least three of us.

If I hear one more time that bonds are only for safety..... :happy

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by nullisland » Tue Mar 24, 2020 3:20 pm

watchnerd wrote:
Tue Mar 24, 2020 1:32 pm
Top 5 holdings of each:

BOA-MTG TRIPARTY REPO
Sprint Corp.
CRC Escrow Issuer LLC / CRC Finco Inc.
TD TRIPARTY MORTGAGE
RBC TRIPARTY MTGE

vs

Qatar Government International Bond
Petroleos Mexicanos
Kingdom of Saudi Arabia
State of Qatar
Petroleos Mexicanos

Or, more specifically, US mortgage backed debt vs foreign governments.
The top holdings of the high-yield fund are a little misleading, those are repurchase agreements collateralized by mortgage-backed securities. They're short-term cash investments and work sort of like a money-market fund. The individual repo agreements are larger than most of their other individual bond holdings, but in aggregate the repo agreements are only about 5% of the fund's holdings, and since they're collateralized loans they're probably the least risky component (aside from the small number of Treasuries they also hold). The regular corporate bonds drive the vast majority of both the risk and return of this fund.

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by watchnerd » Tue Mar 24, 2020 3:30 pm

nullisland wrote:
Tue Mar 24, 2020 3:20 pm
watchnerd wrote:
Tue Mar 24, 2020 1:32 pm
Top 5 holdings of each:

BOA-MTG TRIPARTY REPO
Sprint Corp.
CRC Escrow Issuer LLC / CRC Finco Inc.
TD TRIPARTY MORTGAGE
RBC TRIPARTY MTGE

vs

Qatar Government International Bond
Petroleos Mexicanos
Kingdom of Saudi Arabia
State of Qatar
Petroleos Mexicanos

Or, more specifically, US mortgage backed debt vs foreign governments.
The top holdings of the high-yield fund are a little misleading, those are repurchase agreements collateralized by mortgage-backed securities. They're short-term cash investments and work sort of like a money-market fund. The individual repo agreements are larger than most of their other individual bond holdings, but in aggregate the repo agreements are only about 5% of the fund's holdings, and since they're collateralized loans they're probably the least risky component (aside from the small number of Treasuries they also hold). The regular corporate bonds drive the vast majority of both the risk and return of this fund.
So is that a buy recommendation?
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informal guide
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Re: 7% Yield on High Yield Corporate > EM Debt

Post by informal guide » Tue Mar 24, 2020 4:17 pm

Another popular High yield fund is FAGIX, Fidelity Capital & Income, with over $12 billion in fund assets. It has been around for decades, with a unique feature that serves it well in good times, but..... Its assets consist, as of 2/28/2020, of 20.7% equities; 14.8% of bond assets are rated CCC and below, as of 1/31/20. As of year-end 2019, 34% of the equity portfolio was in information technology.

The "but" refers to when markets decline. YTD through yesterday returns were -26.93%; certainly not ballast against a declining equity market! It currently has a SEC 30 day yield of 5.39%, dragged down by the zero to very low yielding equities in the portfolio

My belief is that many have bought it because, over good periods and long periods of time, it outperforms other high yield bond funds (who don't have a 20% equity allocation). Caveat emptor!

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by nullisland » Tue Mar 24, 2020 4:18 pm

watchnerd wrote:
Tue Mar 24, 2020 3:30 pm
So is that a buy recommendation?
lol. Not investment advice. For what it's worth I do not own any high-yield corporate bonds. I do not expect to purchase any. I do find the high-yield spread an interesting economic data point.

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by watchnerd » Tue Mar 24, 2020 4:19 pm

informal guide wrote:
Tue Mar 24, 2020 4:17 pm
certainly not ballast against a declining equity market! It currently has a SEC 30 day yield of 5.39%,
Well, yeah...but hopefully nobody buys junk expecting them to act like Treasuries.
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Re: 7% Yield on High Yield Corporate > EM Debt

Post by alpenglow » Tue Mar 24, 2020 7:59 pm

The high yield option adjusted spread right now is almost 11%, which is a recent high. FWIW, it spiked to almost 20% in 2008.

https://fred.stlouisfed.org/series/BAMLH0A0HYM2

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by watchnerd » Tue Mar 24, 2020 8:08 pm

alpenglow wrote:
Tue Mar 24, 2020 7:59 pm
The high yield option adjusted spread right now is almost 11%, which is a recent high. FWIW, it spiked to almost 20% in 2008.

https://fred.stlouisfed.org/series/BAMLH0A0HYM2
Dang
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Re: 7% Yield on High Yield Corporate > EM Debt

Post by desafinado » Tue Mar 24, 2020 8:13 pm

with the new fed actions aren't corporates basically just equities with a fed bid?

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by shm317 » Tue Mar 24, 2020 8:14 pm

I cover high yield for a living. As was the case in 2008, the market is (temporarily) broken. In these situations, trading liquidity literally disappears. Funds are forced to sell bonds to fund redemptions but there are no buyers on the other side. The bid/ask spread become insane. 5, 10, 15 points. Funds end up selling the shortest dated highest quality stuff they can because that’s the only place they can get liquidity. Which is why some front end bonds are climbing to ridiculous yields right now.

For brave and greedy buyers you can make a lot of money in high yield in these markets, just taking advantage of the lack of liquidity.

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by watchnerd » Tue Mar 24, 2020 8:15 pm

desafinado wrote:
Tue Mar 24, 2020 8:13 pm
with the new fed actions aren't corporates basically just equities with a fed bid?
I don't interpret the Fed as a new TARP for corp bonds (yet).

Liquidity and market making by the Fed is filling the gap banks used to play before Dodd-Frank.
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Re: 7% Yield on High Yield Corporate > EM Debt

Post by Dale_G » Tue Mar 24, 2020 11:15 pm

I hold 25% of my bonds in Vanguard's high Yield (VWEAX) and Emerging Markets (VEGBX) in equal amounts. I only go back with the EM bonds about 6 years, but have held junk most of the time for 30 years. I also hold long treasuries and I rebalance the bond funds as the occasion demands. The last good opportunity was was in 2008/2009. I remember adding a good chunk at $4.03/shr. The low was $3.90 on 12/05/2008.

We'll see where it gets to this time.

I don't need bonds for safety and I don't recommend junk to others. It takes a certain kind of perverse nature.

Dale
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Re: 7% Yield on High Yield Corporate > EM Debt

Post by watchnerd » Tue Mar 24, 2020 11:50 pm

Dale_G wrote:
Tue Mar 24, 2020 11:15 pm
I hold 25% of my bonds in Vanguard's high Yield (VWEAX) and Emerging Markets (VEGBX) in equal amounts. I only go back with the EM bonds about 6 years, but have held junk most of the time for 30 years. I also hold long treasuries and I rebalance the bond funds as the occasion demands. The last good opportunity was was in 2008/2009. I remember adding a good chunk at $4.03/shr. The low was $3.90 on 12/05/2008.

We'll see where it gets to this time.

I don't need bonds for safety and I don't recommend junk to others. It takes a certain kind of perverse nature.

Dale
What do you think of local currency EM debt?

LEMB (ETF) looks kind of interesting, but it's heavy on Brazil.

USD debt seems to hold less sketchy countries, but then you're faced with the dilemma of defaults vs devaluation.
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Re: 7% Yield on High Yield Corporate > EM Debt

Post by littlebird » Wed Mar 25, 2020 12:03 am

mptfan wrote:
Tue Mar 24, 2020 3:06 pm
restingonmylaurels wrote:
Tue Mar 24, 2020 2:38 pm
You probably not getting many comments because most BHers would not deign to hold these funds.
That's not true, I think VWEAX is a good fund and I hold high yield bonds.
Me too. I’ve been satisfied with it for years and still hold it.

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by Dale_G » Wed Mar 25, 2020 12:21 am

What do you think of local currency EM debt?
If Vanguard offered a local currency bond fund, I would probably own some. But I think I already have plenty of currency risk with International equities :happy

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by restingonmylaurels » Wed Mar 25, 2020 3:03 am

I believe the count is now 5 BHers admitting to be longer-term holders of HYC.

The SEC yield as of yesterday's close is now 7.58%. Treasuries of similar duration are 0.44%. Hard to resist the urge to add at that delta.

BTW, although the focus of the junk market now is on potential/actual default, I would think that the junk market's quality will actually improve, with all of the downgraded BBBs that will soon move into this category.

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by restingonmylaurels » Wed Mar 25, 2020 6:16 am

restingonmylaurels wrote:
Wed Mar 25, 2020 3:03 am
The SEC yield as of yesterday's close is now 7.58%. Treasuries of similar duration are 0.44%. Hard to resist the urge to add at that delta..
The credit spread is then what, at least 714 basis points.

Per S&P, https://www.cnbc.com/2020/03/20/junk-bo ... -says.html, the junk bond default rate could go from 3.1% to 10% over the next 12 months.

VG's high yield corporate fund (VWEAX) historically has a default rate about half that, 1.5%.

Then using S&P's estimate, VWEAX's default rate would go to around 5% over the next 12 months.

If this is viewed over 6 years time (twice the fund's duration) and defaults are assumed to fall in half the second year and revert to a normal range in the third year, the excess pre-tax earnings from buying HYC now would be:

(6 years * 7.14%) - (1 year * 5%) - (1 year * 2.5%) - (4 years * 1.5%) = 42.84% - 13.5% = 29.34% or 4.89% per year

Does the math work out?

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by sperry8 » Wed Mar 25, 2020 1:53 pm

restingonmylaurels wrote:
Wed Mar 25, 2020 3:03 am
I believe the count is now 5 BHers admitting to be longer-term holders of HYC.

The SEC yield as of yesterday's close is now 7.58%. Treasuries of similar duration are 0.44%. Hard to resist the urge to add at that delta.

BTW, although the focus of the junk market now is on potential/actual default, I would think that the junk market's quality will actually improve, with all of the downgraded BBBs that will soon move into this category.
Agreed, that is a heck of a spread. Not sure if defaults are priced in... but with gov't backstops perhaps there will be less defaults than feared?
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Re: 7% Yield on High Yield Corporate > EM Debt

Post by alex_686 » Wed Mar 25, 2020 1:58 pm

sperry8 wrote:
Wed Mar 25, 2020 1:53 pm
Agreed, that is a heck of a spread. Not sure if defaults are priced in... but with gov't backstops perhaps there will be less defaults than feared?
The yield either has to be coming from credit spreads (default risk) or from liquidity. The CDX HY 5 year index, which is a hedge against high yield defaults, is current at 723 bps or 7.23%, so I am going to guess that most of it is coming from the credit spread.

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by madbrain » Wed Mar 25, 2020 7:34 pm

restingonmylaurels wrote:
Wed Mar 25, 2020 3:03 am
I believe the count is now 5 BHers admitting to be longer-term holders of HYC.

The SEC yield as of yesterday's close is now 7.58%. Treasuries of similar duration are 0.44%. Hard to resist the urge to add at that delta.

BTW, although the focus of the junk market now is on potential/actual default, I would think that the junk market's quality will actually improve, with all of the downgraded BBBs that will soon move into this category.
I still own about $75k of high-yield in Roth IRA. VWEHX and SPHIX . They sure have taken a tumble this year between the fed rate cuts and recession prospects. I'm not selling.

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by restingonmylaurels » Thu Mar 26, 2020 5:05 am

madbrain wrote:
Wed Mar 25, 2020 7:34 pm
restingonmylaurels wrote:
Wed Mar 25, 2020 3:03 am
The SEC yield as of yesterday's close is now 7.58%. Treasuries of similar duration are 0.44%. Hard to resist the urge to add at that delta.
I still own about $75k of high-yield in Roth IRA. VWEHX and SPHIX . They sure have taken a tumble this year between the fed rate cuts and recession prospects. I'm not selling.
At yesterday's close, the SEC yield for VWEAX is now 7.96%!!!

Similar duration Treasury is 0.41%, for an excess yield of 7.55%!!

Will shortly be adding more monies to my VWEAX fund.

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by madbrain » Thu Mar 26, 2020 5:25 am

restingonmylaurels wrote:
Thu Mar 26, 2020 5:05 am
Similar duration Treasury is 0.41%, for an excess yield of 7.55%!!

Will shortly be adding more monies to my VWEAX fund.
I would be careful with that, with the recession we are already in, which is going to crush a lot of businesses. I believe we are far from having hit the bottom. I'm holding on, but not ready to add to mine yet.

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by restingonmylaurels » Thu Mar 26, 2020 5:53 am

madbrain wrote:
Thu Mar 26, 2020 5:25 am
restingonmylaurels wrote:
Thu Mar 26, 2020 5:05 am
Similar duration Treasury is 0.41%, for an excess yield of 7.55%!!

Will shortly be adding more monies to my VWEAX fund.
I would be careful with that, with the recession we are already in, which is going to crush a lot of businesses. I believe we are far from having hit the bottom. I'm holding on, but not ready to add to mine yet.
Yes, I concur with that. By shortly I meant I will look at this funding over the next several weeks, waiting for other possible bad news.

Thinking back to 2008/09, I think VWEAX hit its bottom in December 2008, while stocks hit theirs in March 2009.

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by grayfox » Thu Mar 26, 2020 6:35 am

watchnerd wrote:
Tue Mar 24, 2020 1:32 pm
VWEAX is showing a 30 Day SEC yield of 7%.

https://investor.vanguard.com/mutual-fu ... file/VWEAX
How risky is Vanguard High-Yield Corporate Fund Admiral Shares (VWEAX)?

It was 6.00 on 2/19/2020 before the crisis and now it is 4.95, so down -17.5%.
Compare to S&P500 which is now down about -23.38% since 2/19. So less drawdown than S&P500.
Meanwhile IT Investment Grade VCIT is down -7.7%. So defintely worse than investment grade bonds.

Look at how this fund has done in past recessions. I would look at VWEHX because it has a longer history going back to 1980. VWEAX only goes back to 2002

Also, I would subtract off at least 2% from the SEC Yield for possible defaults. Maybe subtract 3% to be safe. Right now SEC yield is showing 7.96% So the expected return is more like 5 or 6 percent, which is not too shabby.

If the SEC Yield gets to 10%, this would look pretty good. I would only buy these things when they are beaten way down.

BTW: Back in 2014 I looked at how well SEC predicted 5-year return for VWEHX from Jan-1994 to Dec-2013. I found that SEC was a biased estimator. The mean return predicted by SEC was 0.0792 while the actual mean return was 0.06. So the mean prediction was biased +1.92% high. That is why I would subtract about 2% on average from SEC Yield to predict the return.
Last edited by grayfox on Thu Mar 26, 2020 7:22 am, edited 1 time in total.
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Re: 7% Yield on High Yield Corporate > EM Debt

Post by restingonmylaurels » Thu Mar 26, 2020 7:22 am

grayfox wrote:
Thu Mar 26, 2020 6:35 am
watchnerd wrote:
Tue Mar 24, 2020 1:32 pm
VWEAX is showing a 30 Day SEC yield of 7%.

https://investor.vanguard.com/mutual-fu ... file/VWEAX
This was 6.00 on 2/19/2020 before the crisis and now it is 4.95, so down -17.5%.
Compare to S&P500 which is now down about -23.38% since 2/19. So less drawdown than S&P500.
Meanwhile IT Investment Grade VCIT is down -7.7%. So defintely worse than investment grade bonds.

Look at how this fund has done in past recessions. I would look at VWEHX because it has a longer history going back to 1980. VWEAX only goes back to 2002

Also, I would subtract off at least 2% from the SEC Yield for possible defaults. Maybe subtract 3% to be safe. Right now SEC yield is showing 7.96% So the expected return is more like 5 or 6 percent, which is not too shabby.

If the SEC Yield gets to 10%, this would look pretty good. I would only buy these things when they are beaten way down.
Going back to 1985 on PV, VWEHX has a CAGR of 7.78%. I assume that is inclusive of default losses.

In a post above, I had tried to calculate the excess return (above similar duration Treasuries) of VWEAX, net of expected losses.

I remember that this fund has a historical average of about 1.5% loss to defaults. Given its safer junk philosophy, I assume that it could lose 5% this year (based on market expectations of a 10% default rate in all junk bonds), 2.5% next year and then return to 1.5% per year after that.

Even with those losses, this SEC yield is pretty compelling and I wonder how much longer this bargain will be available.

Given the forward looking nature of the markets, anywhere from 1 day to 3 weeks I would guess. Just need that other foot to fall first.

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sperry8
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Re: 7% Yield on High Yield Corporate > EM Debt

Post by sperry8 » Fri Mar 27, 2020 1:38 pm

GMO came out with a white paper today touting buying HY. Said the bottom may not be in, but for someone willing to hold medium to long term should be happy. Perhaps they are early - but sometimes these things have a way of being deals for only a short window.

https://www.advisorperspectives.com/com ... -in-credit
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Re: 7% Yield on High Yield Corporate > EM Debt

Post by restingonmylaurels » Fri Mar 27, 2020 2:20 pm

sperry8 wrote:
Fri Mar 27, 2020 1:38 pm
GMO came out with a white paper today touting buying HY. Said the bottom may not be in, but for someone willing to hold medium to long term should be happy. Perhaps they are early - but sometimes these things have a way of being deals for only a short window.

https://www.advisorperspectives.com/com ... -in-credit
The key issue here is the significant credit spread versus the extent of the upcoming losses. I like their analysis of those potential losses.

I am assuming that VG's HYC might lose half of that due to its focus on higher rated junk but that is mere speculation.

As the white paper states:
While this would suggest an attractive entry point, we must also consider the potential downsides and that asset prices might sell off further:

- The current high yield spread of 1,000 bps compares to ultimate wides of over 1,100 bps in 2002 and 2,000 in 2008.6
- High yield drawdown was 33% from June through November of 2008.7
So I am watching this closely over the next few weeks. As I write this, HYG is up 0.68% on the day while the SP&P 500 is down 1.52%.

This would seem to imply that there is some sentiment that this space may be firming.

HYC's SEC yield was still 7.88% (down 0.10%) even though the fund gained more than 3% yesterday. Huh?

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by sperry8 » Fri Mar 27, 2020 4:18 pm

The drawdown was 33%... but HYG has already had a sig drawdown... how much is left is the real question. It won't be 33% from here
BH contest results: 2019: #233 of 645 | 18: #150 of 493 | 17: #516 of 647 | 16: #121 of 610 | 15: #18 of 552 | 14: #225 of 503 | 13: #383 of 433 | 12: #366 of 410 | 11: #113 of 369 | 10: #53 of 282

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by watchnerd » Fri Mar 27, 2020 4:20 pm

sperry8 wrote:
Fri Mar 27, 2020 1:38 pm
GMO came out with a white paper today touting buying HY. Said the bottom may not be in, but for someone willing to hold medium to long term should be happy. Perhaps they are early - but sometimes these things have a way of being deals for only a short window.

https://www.advisorperspectives.com/com ... -in-credit
Okay, what's with all the Lil Nas references in that article? WTH?
70% Global Market Weight Equities | 15% Long Treasuries 15% short TIPS & cash || RSU + ESPP

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by dcop » Fri Mar 27, 2020 6:10 pm

I own both VWEAX and VWETX. The NAVs has been volatile during the CV but I'm hoping the monthly payout ($$ not percentage) doesn't bungee jump. I've only owned them for four years so this is my first time through a economy crisis with them.

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Re: 7% Yield on High Yield Corporate > EM Debt

Post by Elysium » Fri Mar 27, 2020 6:16 pm

High Yield Bonds are really a hybrid, between equity and bonds, and as such regardless of the spread they cannot be used as a Bond equivalent. That leaves with the choice of using the Equity side of the allocation to buy High Yields. In times like this the question is where is more value, in buying more Equities that are getting beaten down, or buying High Yields that are also getting beaten down.

We have to really look at total returns, not the yield, when the market recovers which one will have better overall returns, most likely equities. If we use bond money to purchase High Yield then we are increasing the risk in portfolio which no one wants to do now. If we do from the equity side there is an opportunity cost involved.

May be a good option for those who cannot bring themselves up to buy more equities now, to buy some High Yield instead. But make sure it comes out of equity side. Personally I would skip, since I do not have space in my portfolio for too many things, and it really complicates things to hold hybrid assets.

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