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SPDR Barclays High Yield Bond ETF Message Board

  • rapscallion721 rapscallion721 Jul 29, 2010 1:29 PM Flag

    Deflation Good for JNK?


    There is more and more talk about a weakening recovery leading to deflation. Wouldn't this be good for a fixed-paying instrument like JNK?

    Could JNK be used as a hedge against deflation?

    Argument for:
    Investor gets roughly 12% yield (more or less fixed). This payment is "worth more" in a deflationary environment than an inflationary one.

    Argument against:
    Ailing economy could mean higher default rates meaning JNK will get hit.

    Perhaps an investment grade fund is the better investment in a deflationary environment?

    Any thoughts?


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    • What are those stocks and what are they offering for cash flows?

    • There are stocks that are offering tremendous cash flows right now.

      The high yield debt market is much less attractive than it was a year ago.

      I'm not sure why you don't agree with that, but do as you please.

      No portfolio is complete without some equity exposure.

    • If you're going to invest in stocks you might as well put your money in the slots at a casino. It's a lot more fun and you get free drinks to boot.

    • WRONG. The dividend is falling. The dividend falling hurts the yield just as a rising NAV would.

      No emergency here, but stocks look better than bonds to me for the first time in a LONG time.

    • I don't see how anyone can lose with JNK. So what if the yield goes down. It means that the NAV will go up substanially. If you have a falling monthly dividend you'll just make it up on the price. The price appreciation will probably out distance the decline in the monthly payout. WIN-WIN with JNK!!

    • Yields on all the high yields are being squeezed lower. DKW and PYE are below 6% on investment grade items. JNK will get to +/-8% yield within the next year to 18 months. US treasuries will get closer to comparable German and Japan government bonds.

      As JNK reinvests into new bonds, the yields will have to drop. But what are the other choices? PIJ is a ford bond paying 8%, AFF and AVF of AIG are now at 9%, even risky preferred stocks of NBG (NBG-A) is down to 12%.

      Where will JNK find to reinvest cash?

      The biggest question I have is: Where are the banks loaning this cheap money? Fed at 0.25%, but margin interest rates are still 7-9% (Swab, Scottrade, Bank of America Securities, TD Ameritrade) and these are highly collateralized loans with the broker having power to sell and get their money back. Why are margin rates still so high?

    • Actually, my data provider had an error. PHT had dividends since its inception.

      It is a great long term investment, and almost always is. I have over 100% of my portfolio here.

      What I'm saying, what you are dodging is that the current yield doesn't support this price. You know it. I know it. Everybody knows it. And why you want to pretend otherwise is absurd.

      Long term AAPL will probably be worth $500 per share, but that doesn't mean it is smart to pay 280 today.

      The fact is the dividends here are falling apart and that is going to put pressure on anymore upside for a long time.

      I don't see a collapse due, but why would anybody chase a declining dividend? Please answer that.

    • Nobody is certain about anything, but we are seeing a fundamental change in high yield here that I am not quite comfortable with. If anybody can change my mind, I'll listen.

      But, this divi is looking poorer and poorer. This could be at 29 cents per month in 3 months from now.

      How does that justify paying over $39.00?

    • The doc can’t stand prosperity. He’s always trying to fix something that isn’t broke. He has issues.

    • $100 invested in PHT on 1/1/03 would be worth $273 on 7/30/10. $100 invested in HIX on 1/1/03 would be worth $226 on 7/30/10. What is absurd about that?

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