Investors earn huge returns from the company’s crisis-era bonds

Bonds issued by several companies hit hard by the coronavirus have rallied more strongly than last year, rewarding investors who are willing to gamble to survive.

The Cruise Operator Carnival Corporation is again a prime example. A year ago, it shut down ships to demand .5 4 billion from investors, demanding an 11.5 percent interest rate. With the rise in the value of bonds, the yield on these bonds has now fallen below 4 per cent.

Carnival is still burning with m 600m per month. Ships used as collateral for bond deals are still docked while the company waits for U.S. sanctions to lift cruises. Buyers of these bonds and debt issued by movie chains and airlines have made huge gains in the last 12 months as a result of the start of the economic recovery.

“It’s amazing,” said Shannon Ward, Capital Group’s portfolio director, an asset manager who has invested in multiple bonds issued and owns about 10 percent of Carnival Bonds, according to a recent regulatory release. “In April last year, there were totally questions about how these companies could make it. You had to put a heavy coupon on it to bond with that uncertainty. . . It was a very difficult time. “

U.S. high-yield bonds, rated lower than their investment-grade, returned more than 23 percent to investors at the end of March for 12 months, more than erasing steep losses from last year’s sales, compiled by ICE Data Services. On the index.

This is the third time in history that the 12-month return for the market has exceeded 20 percent, say analysts at Deutsche Bank. The other two periods were the global financial crisis in 2008 and the boot of dotcom at the turn of the century.

Investors and analysts point to the historic historic intervention of the Federal Reserve, which announced on March 23, 2020, that the turnaround would be an unprecedented move to buy corporate bonds to support the market for selection.

With debt prices starting to rise again last year, Yom Brands, a brand-owned restaurant group including KFC and Taco Bell, broke the three-week gap to sell high-yield bonds and raised $ 600m on coupons at 75 .75 per cent.

The company was and remains among the high-rated recipients in the high-yield market, but a wave of closures at its restaurants has forced it to make urgent financing.

The bond now trades around 110 cents on the dollar.

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Rating the ladder higher, investment-grade firms have already begun re-financing the issue last year, taking advantage of investor demand and ingot adoption costs.

Kohl’s new debt rose this week with a 3.4 per cent coupon, which would lead to the release of the ০০ 100 million bond sold in 9.5 per cent coupon last April. The crisis-era bond has since yielded 130 cents or 2 percent against the dollar.

It followed a similar move by department store chain Nordstrom last week when it raised $ 675m to issue bonds from April.

According to an index operated by ICE Data Services, in total, more than 6tn of investment-grade debt, more than 80 percent of arrears, traded above 100 cents above the dollar. $ 1.5tn The number in the U.S. high-yield bond market is slightly lower at 799 percent than expected.

“It’s a remarkable turnaround,” said William Smith, director of U.S. high yields at Alliance Bernstein. The fund manager holds about 3.6 percent of the yam bonds. “What the central bank and politicians have done is to narrow the cycle. Our economy had an unprecedented shutdown – one of the worst recessions we’ve ever seen – and now we’re already back. “

Some still emphasize caution.

The insanity of the fund since last year has widened the pool of outstanding corporate debt, requiring refinancing down the road and exacerbating higher withdrawals.

The prosperity of the economic outlook has also dragged down corporate spending, with additional yields on top of U.S. treasuries for U.S. corporate bonds at historic historic lows. This means that the market is sensitive to rising interest rates as inflation holds up. This year, the investment-grade market has fallen into one of its worst beginnings on record and returns on the high-yield bond market have begun to come under pressure.

Investors warn that the risk of disappointment – which translates into a fall in prices – is high as so many positive expectations are created in the market.

“The question mark comes after hearing the stimulus of financial stimulus,” Smith said.

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