New Junk-Loan Fund Uses Leverage to Maximize Returns and Today’s Other Top Stories

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Struggling to find adequate yield in today’s market? You’re not alone. Investors have been forced into ever more exotic instruments in search of yield. But now AdvisorShares has the answer. A healthy dose of leverage in your high-yield loan ETF is just what you need.

You can forget about complicated total-return swaps and collateralized loan obligations. Because, the AdvisorShares Pacific Asset Enhanced Floating Rate ETF will use derivatives to boost gains on high-yield loans, allowing retirees and pensioners to magnify bets on debt that promises higher yields when interest rates rise, according to a U.S. regulatory filing.

  To see a list of high yielding CDs go here.  

The fund is sure to attract attention from yield starved investors who have been plumbing new depths in the junk bond market for little or no return. By using leverage, the returns on this new fund will be amplified. But, and its a BIG but, any losses will also be amplified.

If investors get it wrong, their juiced up investments will also have a magnified effect on the $1.1 trillion market that is one of the most difficult to trade. With buying and selling taking place in telephone conversations and email. Its common for sellers to wait three weeks to settle a transaction, as opposed to just days for standard high-yield bonds.

So far this year high-yield loans have fared quite well, returning 1.7 percent, according to data compiled by Standard & Poor’s and the Loan Syndications and Trading Association. But who knows what the future holds?

 

Todays Other Top Stories

Municipal Bonds

Chicago Tribune: – Retirement: where to invest your stock-sale profits. – Wise investing requires selling your stocks at regular intervals to respond to changes in your life and your portfolio. Once you’ve sold your stocks, you’ll need to reinvest the proceeds. We suggest some ideas below that will produce income without exposing you to stock-market risk. CDs and short-term bonds.

Bloomberg: – Tax-free bonds rally like it’s 1991 in fund frenzy: Muni Credit. – The longest rally in municipal debt in more than two decades is luring cash to mutual funds and pushing asset managers to buy tax-free bonds even with yields close to 11-month lows.

Risk.net: – U.S. muni treasurers warn LCR could crimp spending. – Municipal bonds are not highly liquid. To some, that’s stating the obvious, but if US regulators write it into their version of Basel III’s liquidity coverage ratio, state and city treasurers say their financing costs will rise. By Joe Rennison.

Columbia Management: – Hungry for income? High yield munis could be your meal ticket. – Many investors are concerned about the prospect of rising interest rates and the impact higher rates may have on bonds, especially since we’ve been in a very low rate environment for so long. While we believe that rates are likely to move higher at some point, the impact will not be the same across all bonds. We think high yield municipal bonds, with their high yields and opportunity for price appreciation, are one segment of the market worth considering.

BizJournals: – Katy gets a new credit rating from Standard & Poor’s. – Standard & Poor’s Ratings Services has raised its rating on Katy’s general obligation bonds one notch from “AA+ to “AAA,” the agency’s highest rating.

 

Treasury Bonds

WSJ: – Treasury bonds rise, shake off upbeat data. – Treasury bonds strengthened on Tuesday, shaking off upbeat U.S. economic releases, a lukewarm two-year note auction and another new peak for stocks.

 

Corporate Bonds

PV-Tech: – Barclays cites solar threat as it downgrades entire U.S. utility bond market. – Barclays downgraded the entire high grade corporate bond market for the US electric sector last week in a strong indication that solar PV-generated power coupled with storage presents a long term disruptive risk to utilities.

 

High Yield Bonds

Bond Buyer: – High-yield issuers should seize the moment. – Investors’ ravenous demand for high-yield municipal bonds has created an optimal environment for lower-rated issuers, analysts say.

WSJ: – New fund stars ride junk bonds to the top.A handful of managers have elbowed their way to the top of the bond-fund world by loading up on riskier debt. Someday behavioral economists may look back at today’s high-yield bond market as a textbook study in how investors can continue to buy something even when they believe it’s significantly overpriced.

Automotive News: – Tesla bonds assigned ‘junk’ status by S&P. – Its shares may be the darling of Wall Street, but Tesla Motors Inc. on Tuesday received a far less rousing recommendation from bond raters at Standard & Poor’s Corp. — which assigned the electric-vehicle maker a B- rating, or “junk” status.

WSJ: – Bonds, mezzanine on back burner in buyouts for first time in a decade. – High-yield bonds and mezzanine debt, mainstays of the buyout financier’s cookbook, have been relegated to the backburner, according to new data and midmarket lenders.

Citywire Global: – Market ‘wobble’ won’t end in correction, says HY chief. – Global high yield markets are not heading towards a correction but it would be wise to keep capital spare to pounce on weakness, Mirabaud’s Andrew Lake has said.

MarketWatch: – Consider this before you jump on the junk-bond bandwagon. – Given the gains mopped up by investors in recent years, much of the debate surrounding the market is about whether junk bonds now are too overvalued. And it’s something investors should keep in mind as they think about whether it makes sense to devote additional money to a high-yield fund, ETF, or portfolio that contains junk bonds.

 

Emerging Markets

Emerging Markets Daily: – EM bond risk tempered, despite flurry of issuance. – With emerging market corporate bond issuance on the rise in recent weeks, and investors seeking out higher-yielding sovereign debt, there are signs of a build-up in risky emerging market positions.

FT: – U.S. tapering not so scary for EM bonds. – A rise in overall emerging market (EM) debt levels and an increase in US Treasury yields is causing many investors to look for a new crisis. The argument goes that developed market (DM) central banks cut rates to zero in response to the financial crisis, and capital flowed out of these economies in search for yield.

CFA Institute: – Emerging Market Debt: An overlooked source of alpha? – After the global financial crisis, emerging market debt was a rising star. Yet, since last fall these markets had steadily lost ground. Now that these markets appear to have stabilized in recent months, are there opportunities for investors? If so, are these opportunities beta or alpha? In other words, can you jump in with both feet or do you have to be selective in what you invest?

 

Catastrophe Bonds

Artemis: – Bermuda Stock Exchange listings of cat bonds & ILS hits $12.43 billion. – The total volume of insurance-linked listings on the Bermuda Stock Exchange (BSX) reached a new high in recent days, with catastrophe bonds, insurance-linked securities and insurance linked investment funds on the BSX now totaling $12.43 billion.

 

Investment Strategy

LearnBonds: – Option Selling: A strategy to increase portfolio income. – For the purposes of this article, we will discuss covered call selling and cash secured put selling – two of the most basic, and safest, option selling strategies for generating extra portfolio income.

Live Trading News: – El Erian on why bond investors continue to surprise the experts. – There is a major contradiction in this market, participants are putting their money into bonds again, perplexing the experts who have been expecting them to continue switching into riskier assets.

Jake Zamansky: – Investors are chasing yield at their own peril. – The Federal Reserve’s low interest rate policies have pushed investors pursuing returns, or “chasing yield” as it’s known on Wall Street, to buy riskier assets, including junk bonds and penny stocks.

 

Bond Funds

Focus on Funds: – Have your bonds, and hedge them, too. – One of the trendy, well, trends in fund investing these days is the range of efforts to build something capable of dodging a sudden surge in interest rates. Not everything will work, but rest assured everything will be tried.

ETF.com: – ETF Watch: Bond-fund rollouts near. – The world’s biggest ETF company, on May 29 is launching four corporate bond funds aimed at helping investors manage rising interest rates—two actively managed funds that hedge interest-rate risk and another two that add rungs to its growing family of expiring target-date maturity funds.

 

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