High-Yield Bond Investors Find Returns, Quality: Banker


As high-yield bond trading activity has one of its best years ever, investors are looking for and finding solid investments in that arena, a Citigroup banker told CNBC Tuesday.

The issuance of high-yield bonds, also known as junk bonds, was the highest ever last week.

“We’re really seeing a flight to quality in the high-yield market because the only risk of default that exists in high-yield is at the lower, in the CCCs, and in a lot of those over-levered LBOs (leveraged buyouts),” said John Fenn, head of credit analysis at Citi . He has been with the bank for seven years.

Fenn said that investors are flocking to high-yield bonds because of robust returns and lower risk.

Time to Jump on Junk?

“Balance sheet repair has fixed companies to the point where the risk of default is the lowest it’s been in more than two years,” said Fenn.

"Right now, the high-yield market is flush with cash, because investors can’t find yield anywhere [else],” he added. “Compare high-yield spreads vs. investment grades, you’re getting 8 ¼ to 8 ½ percent in high-yield vs. less than 4 percent in investment grade.”

Fenn’s picks:

  • Univision, the Spanish-language media company serving the US
  • BB-rated bonds
  • Discounted bank debt

To learn more about bond investing, specifically municipal bonds, watch the "Bond Bets" special segment, Wednesday, August 18 on Street Signs, 2pm ET.