Tag: High Yield Bond Hypothesis

Mar 15

Do high yield bonds outperform other asset classes? The race begins….

Over the course of the current (2015/16) financial year, I have built up a portfolio of 12 of the highest yielding Sterling fixed-income securities generally available to a retail investor. These securities are held in an individual savings account (Isa). This is important, as it means that all interest accrues free of tax. As at …

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Feb 16

Who’s afraid of the big bad bear?

An air of despondency hangs over the City of London, with security markets in steady decline, dragged down by the collapse in international commodity prices. In Aberdeen, Britain’s oil capital, the atmosphere is closer to panic. Property prices are tumbling, and many who want to sell are finding no buyers at all. In late January, …

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Jan 12

The Kondratieff Wave and the Bond Market

Following commentary over the past three months on the Kondratieff cycle, the question has been raised as to how an investor can tell whether financial markets are in the upswing or downswing phase of a long wave. During the upswing, private sector investment is strong and rising; share prices increase over time in real terms; …

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Dec 14

Pricing Anomalies in the Fixed Income Market

By comparison with the market for equities, the London corporate bond market remains illiquid and imperfect. The LSE has done its best to improve matters by introducing the Order Book for Retail Bonds (ORB), publishing up-to-the-minute information on its platform on the volume and price of bonds traded, breaking news and financial results. But there …

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Nov 10

Schumpeter, Minsky and me: Long waves in British financial markets – Part 2

My analysis indicates that we are now in the downswing of the fifth long wave in British financial markets since the Industrial Revolution. The upswing ended with the international financial crisis of 2007–09, and one would expect that the downswing will endure for between 20 and 25 years and evolve in two phases, each lasting …

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Sep 11

Premier Oil and the High Yield Hypothesis

During market dips, it is worth recalling the words of Warren Buffett – “Be fearful when others are greedy; be greedy when others are fearful.” Security prices go up and security prices go down, but the coupons paid on bonds go on forever – steady, predictable and reliable. While they offer no upside beyond the …

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Aug 10

In Praise of Preference Shares

Preference shares are today a relatively neglected instrument of corporate finance. The current conventional wisdom of the City is that they offer none of the upside of ordinary shares and none of the tax advantages of loan notes. I have an alternative perspective. True, preference share dividends are not tax deductible, unlike loan interest payments. …

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May 12

High Yield Bonds and the Efficient Market Hypothesis

The proposition that investments in high yield bonds will generate returns that are greater than could be secured from other investments is contrary to the Efficient Market Hypothesis (EMH). If the EMH is correct, then it should be impossible for an investor in high yield bonds to generate excess returns. So the performance of the …

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Apr 09

Rating Agencies and Bond Mispricing

As reported in March, over the coming months this site will report results of a real-time experiment in high yield bonds. Casting an eye over potential candidates for the High Yield Portfolio, my attention was caught by two rather curious features of the Co-operative Bank’s 11% Subordinated Loan Notes. These notes were issued in December …

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Mar 16

A Real Time Financial Experiment in High Yield Bonds

Over the coming months, I am conducting a real-time financial experiment designed to test the validity of the hypothesis that investments in high yield bonds (so-called “junk bonds”) systematically outperform investments in apparently safer options such as gilt-edged securities or investment grade corporate bonds. The High Yield Hypothesis emerged from research undertaken by W Braddock …

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