High yield bonds had their best month in April since 2002. Spreads have narrowed nearly 2% from their 1st quarter highs, when junk bond indexes traded at yield premiums of 7-8% over comparable Treasuries. The nearly 9% yield available from the SPDR Lehman High Yield ETF (JNK) is attractive on a relative basis, but conservative investors seeking income may want to wait to see if higher yields develop as defaults rise and Treasuries correct. Historically, absolute yields of 10% have been an effective threshold forthe high yield asset class to be considered attractively valued and for investors to be adequately compensated for the risk inherent in junk bonds.
For taxable investors, municipal bonds offer good value. Dislocations in the municipal bond markets (e.g. auction failures and uncertainties regarding the solvency of bond insurers) have pushed muni bond yields to historically high levels relative to Treasuries. For taxable accounts, the PowerShares VRDO Tax-Free ETF (PVI) offers an attractive short-term, high quality fixed income alternative with a taxable-equivalent yield as high as 4.67% (see table at bottom of page).
Lehman Brothers is cutting roughly 1,300 positions globally, or nearly 5 percent of its work force, amid difficult market conditions, Reuters reported.
Bankers at Jefferies Group on Wednesday forecast an improved deal pipeline for initial public offerings for companies in the business of reducing the world's carbon emissions and fossil-fuel consumption, following a dry spell in the first quarter.
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