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Junk bonds ‘primed’ for bargain hunting

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The head of performing credit for one of the world’s largest distressed debt firms, Oaktree Capital Management, says there are pockets of opportunit­y in junk bonds for investors willing to look past more volatility and wider credit spreads in 2023.

“There are some bargains to be had,” Armen Panossian, who is also the chief executive of Oaktree Specialty Lending Corp, said in an interview with Bloomberg TV.

“The percentage of Bb-rated high-yield bonds is the highest it has been in 10 years, with 60% of the market being lightly levered and offering attractive returns with US dollar prices on those instrument­s in the 70s and 80s.”

“Higher quality tiers of junk bonds are attractive in dollar price and absolute yield terms,” Panossian said.

Gains in US junk bonds extended across ratings in the last week, following a fresh injection of cash into the asset class and a host of commentary from US Federal Reserve officials supporting a slower pace of hikes.

Panossian expects the sector to deliver a strong performanc­e over the next two years, reserving default concerns for lower-quality Ccc-rated bonds.

The US corporate high-yield benchmark has sold off roughly 11% so far in 2022. — Bloomberg

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