The latest back-up in Treasury yields is likely being driven by the Treasury market factoring in a decent fourth-quarter '09 GDP growth rate (hearing +4% for the current quarter), and with that kind of growth, I don't see how high-yield spreads widen very much.
In fact, high yield may be one of the few places to hide in 2010 if the Treasury market has a difficult time, as many expect. One of our best trades in 2009 was to be heavily overweight credit risk on fixed-income and balanced portfolios. We've been debating that posture as we appraoch 2010, but credit and high yield in particular may turn out to be the best house in a very bad neighborhood (i.e., higher Treasury rates) in 2010.
Positions: Continued overweight in corporate high-yield as we near 2010
3. High Yield in 2010By Howard Simons
10:30 a.m. EST Brian, it's been a long time since we had a multi-year downturn in Treasuries, and that occurred during a very different macro environment than the present. During the Treasury bear market of March-October 1987, high-yield outperformed investment-grade, and stocks outperformed high-yield. Everything outperformed Treasuries.
That changed rather abruptly during the October 1987 crash. But I think it may be a good model for 2010. No reference to the crash part is necessary now. It may be, unfortunately, if short-term interest rates rise abruptly, but I do not think that will happen.
4. Pilgrim's PrideBy Tim Melvin
12:23 p.m. I see that Pilgrims Pride (PPC) has emerged from bankruptcy is the new shares are trading on the NYSE at 8 bucks and change this morning. The company went into bankruptcy in December of 2008 as a combination of high debt loads, rising chicken feed costs and a weak economy forced them to see the protection of the courts. In an usually strong restructuring performance all creditors have been paid and the stockholders walked out with shares in the new company. In the majority of bankruptcies creditors get a fraction of the debt and stockholders get zip.
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