This site has been created for exclusive use by institutional investors only and does not take into account investment objectives, financial situation or specific needs of any individual investor. Information should not be the sole basis for any investment decision.
If you are not an institutional client, consultant or financial professional and are looking for more information about mutual funds and other products at Nuveen, please visit our site at www.nuveen.com.
Past performance is not a guarantee of future performance. All investments involve some degree of risk including loss of principal. Investment objectives may not be met.
By agreeing you are confirming you are being truthful, acknowledging you have read the information above and accept the terms and conditions set out with this site and meeting the intended audience requirement for this site. Not all content on this site is appropriate or applicable for the general public and we cannot guarantee consequences with the use of this information by unauthorized or unintended users. Content on this site may not be redistributed and is for informational purposes only and does not constitute investment advice or provide a solicitation of an offer to buy any security.
Staying defensive in the junk bond market
In the uncertain world of the coronavirus, even with several vaccines on the way, avoiding excess risk is more important than ever. As a result, one might assume that relatively higher quality issuers would trade at a premium over those with lower quality balance sheets as investors vie to own the highest quality assets. Surprisingly, however, today higher quality assets arguably look cheap when compared with riskier issuers relative to historical averages. Consequently, and given the context, having a defensive mindset within high yield makes more sense than ever. Luckily, for investors looking to play it safe, the opportunity set in the high yield market is greater than ever and likely growing.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
A word on risk
Investing involves risk; loss of principle is possible. There is no assurance that downside protection will be achieved.
Credit risk may be heightened for the portfolios that invest a substantial portion of their assets in “high yield” debt or loans with low credit ratings. These securities, while generally offering higher yields than investment-grade debt with similar maturities, involve greater risks, including the possibility of interest deferral, default or bankruptcy, and are regarded as predominantly speculative with respect to the issuer’s capacity to pay dividends or interest and repay principal. Companies that issue high yield debt or loans tend to be highly leveraged and thus are more susceptible to the risks of interest deferral, default and/or bankruptcy.
Securities of below investment grade quality are regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal, and are commonly referred to as junk bonds. Issuers of high yield securities may be highly leveraged and may have fewer methods of financing available. The prices of these lower grade securities are typically more sensitive to negative developments, such as a decline in the issuer’s revenues or a general economic downturn, than are the prices of higher grade securities. The secondary market for high yield securities may not be as liquid as the secondary market for more highly rated securities, a factor which may have an adverse effect on a portfolio’s ability to dispose of a particular security. There are fewer dealers in the market for high yield securities than for investment grade obligations. The prices quoted by different dealers may vary significantly and the spread between the bid and ask price is generally much larger than for higher quality instruments. Under adverse market or economic conditions, the secondary market for high yield securities could contract further, independent of any specific adverse changes in the condition of a particular issuer, and these instruments may become illiquid. As a result, a portfolio could find it more difficult to sell these securities or may be able to sell the securities only at prices lower than if such securities were widely traded.
CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.
Nuveen LLC provides investment advisory solutions through its investment specialists.
This information does not constitute investment research as defined under MiFID.