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January 15, 2008

Target low… for high returns! – Low grade bonds

A recent research report from major US investment bank has shown that low grade bonds have outperformed high grade, not only for the month December, but also for the whole year. However, the Merrill Lynch Global High Yield & Emerging Markets Plus index plunged to 2.59%, which is the second worst full year performance, since the index was first introduced, nine years ago.

The worst ever performance of the index was in 2001, when the index plummeted to 2.27%, – which by the way is still… positive! None of the other global high grade indices offered a better downside track record than the Global High Yield & Emerging Markets Plus index over the same period.

The IndexÂ

The Global High Yield & Emerging Markets Plus index is one of the most comprehensive market indicators of low grade debt, as it combines three different indices in one – the Global High Yield Index, the Global Emerging Markets Sovereign Plus Index, and the Global Emerging Markets Corporate Index.

Currently, the value of the composite low grade index, which combines all three markets of low grade debt, stands at over $1 billion.

Target low... for high returns! - Low grade bondsThe Bonds

Low grade bonds – sometimes referred to as: junk debt, high yield debt, non-investment grade debt, speculative grade devt, etc. – are bonds that carry low rating from one or all of the rating agencies (Moody’s, Standard & Poors, Fitch Ratings) because of their high probability of going into default.

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