Undaunted by the recent volatility in risky assets, some investors are turning to speculative debt and junk bond exchange traded funds as they buy on the short-term dips.
“A real dramatic freefall is unlikely in our opinion,” Michael Buchanan, a manager at Western Asset Management Co., said in a Bloomberg article. “We were buyers on days of weakness over the past couple weeks.”
Western Asset and AllianceBernstein Holding LP argue that the global economy is strong enough to withstand short-term shocks, like the weakness in the emerging markets, as central banks promote growth through accommodative measures. [Bond ETFs See Best Start Since ’08]
According to a press release, Western Asset Management partnered with WisdomTree (NasdaqGM: WETF) on global fixed income products. WisdomTree offers actively managed emerging market local-debt-denominated bond ETFs, including the WisdomTree Emerging Markets Local Debt Fund (NYSEArca: ELD) and WisdomTree Asia Local Debt Fund (NYSEArca: ALD).
Bank of America credit strategists led by Hans Mikkelsen advised investors to “consider the recent emerging-market sell-off a buying opportunity” as yield on investment-grade bonds widened an average 9 basis points to 1.28% against the Treasuries since Jan. 22, and spreads on junk bonds worldwide rose 44 basis points to 4.55%, the highest in over two months.
Moreover, credit outlook seems stable with default rates hovering below historic averages. The U.S. speculative-grade default rate dipped to 2.2% in the fourth quarter from 2.7% in the third quarter and from 3.4% in 2012.
“Underlying corporate credit fundamentals are very strong, balance sheets are healthy, default rates are falling from even low levels, corporate earnings are solid,” Edward Marrinan, a credit strategist at RBS Securities, said in the article. “When taken all together, I think credit investors are rather confident that their asset class will be supported.”