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HY Is No Not For The Faint Hearted

17 November 2014 by lberuti

In the afternoon, Mr Draghi was reported to have said the ECB purchase program could include government bonds. A little squeeze followed in credit, with indices moving back to unchanged on the day after a somewhat weak morning. It seems that European QE is taking shape and could happen in the not too distant future. Investors appear convinced that sovereigns and investment grade corporates will be targeted. That means their yields will continue to be depressed and people will be cornered into investing in higher yielding names. They should be careful though. If today the high yield compartment as a whole was tighter, the dispersion was massive. For instance, in CDS, ABGSM and ASTIM were an impressive 384bps and 58bps tighter respectively while UNILSUB and OTE were 44bps and 13bps wider respectively. The same was true for names which are not yet (or not much) traded in CDS but have cash bonds: Manutencoop bonds dropped 15points following disappointing results and Boparan bonds tumbled 5pts after a bird flu case was confirmed on a duck farm in Yorkshire. Investing in High Yield can be very rewarding, but you need to choose wisely.