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New York (HedgeCo.net) – According to an article in last week’s Wall Street Journal, a sizable contingent of bond fund managers are taking advantage of this year’s robust market for debt securities by locking in yearly gains, content to wait until January to seek out any new opportunities.
In particular, managers of funds investing in riskier debt, such as junk bonds, asset-backed securities, and leveraged loans have spearheaded the trend. Given the elevated level of risk associated with these strategies, many managers appear satisfied to let year-to-date returns speak for themselves. As of November 10, junk bonds have returned 52.38% year-to-date, while asset-backed securities have posted a 24.69% return. Additionally, leveraged loans have returned 48.5% on average. Concedes Chris Munck, a trader at B. Riley & Co., “We have had a hell of a rally here. I can’t imagine there is any more upside.”
This theme reflects one of the investment community’s headline trends of 2009, the return to risk. For the opportunistic hedge fund or money manager, the end of 2008 presented a tremendous buying opportunity. While a significant number of funds unloaded assets in order to meet investor redemptions, purchasers were able to scoop up assets, especially less-liquid debt instruments, considerably cheaply.
Meanwhile, with the backing of a fresh string of government programs, including the Term Asset-Backed Liquidity Facility and the Federal Reserve Bank’s purchases of Treasury and mortgage bonds, these assets have recovered their values quite quickly, rewarding opportunistic buyers as the demand-and with it, prices- for such securities has risen.
Dave Wormus
Contributing Writer, HedgeCo.net
news@hedgeco.net
The battered insurance giant AIG returns to Capitol Hill Wednesday facing another frosty reception in Congress – where three AIG trustees appointed by the U.S. government will make their public debut amid growing skepticism over their role at the company.
House Oversight Committee Chairman Edolphus Towns (D-N.Y.) is questioning whether the Federal Reserve Bank of New York – which installed the handpicked trustees in January – is doing enough to protect taxpayers footing the bill for the $182.5 billion bailout.
And POLITICO has learned that one of those trustees has another role – as chairwoman of a Bermuda-based firm that administers hedge funds based in the Cayman Islands and other global tax havens.
Media Monitors Network – "The US Federal Reserve Bank, a private institution, is printing $1 trillion to buy toxic bonds to shore up the economy. Will this work? Perhaps temporarily but most economists predict a sharp decline in the value of the dollar within the next five years. With too many dollars in circulation and a massive debt, the dollar will fall in value vis-à-vis other currencies. The Chinese have already called for a new global reserve currency to replace the dollar as it did to the British pound after the Second World War."
Reuters – Officials from the Federal Reserve and the European Central Bank on Sunday vowed to fight the damaging effects of deflation as the global economy suffers a deep and lengthy recession.
In just a few months, central bankers’ concerns have flipped from fighting inflation to staving off possible deflation — a condition in which falling prices cause consumers and businesses to delay purchases, resulting in an even steeper economic downturn.
Both Janet Yellen, president of the San Francisco Federal Reserve Bank, and Lucas Papademos, vice president of the ECB, highlighted the risks of deflation at the annual meeting of the American Economics Association.
