High Yield Bounces Back

1
High Yield Bounces Back

• Presented to PRMIA New York Fixed Income and
  Credit Risk Symposium
• May 20, 2003
• Martin Fridson,
  CFA
• CEO, FridsonVision LLC
• 917-403-9194 martin_at_fridsonvision.com

2
Comparative Returns
Sources Bloomberg, Lehman Brothers.
High yield bonds have benefited from investors
coolness to stocks.
3
High Yield Spread-versus-Treasuries
Source Lehman Brothers.
In addition to the favorable move in Treasuries,
a reduction in the credit risk premium has
fueled the rally in high yield.
4
High Yield Mutual Fund Flows
Source AMG Data Services.
A heavy influx of capital has driven the price
advance.
5
High Yield Default Rate
Source Moodys Investors Service. As of March
31, 2003.
In issuer terms, the default rate was already on
the way down in 2002.
6
Percent of New Issuance Rated B- or Lower
Source Merrill Lynch Co. First three months.
The improvement in quality during 2001-2003
implies a further decline in default rates in
2004-2005.
7
Total Return by Rating
Source Lehman Brothers.
The concentration of the rally in lowest-quality
paper may necessitate sorting out later in 2003.
8
Volume of Fallen Angels
Sources JPMorgan, Merrill Lynch Co.
Fallen angels volume in 2002 approximated
issuance in 1998, the record year for that
series.
9
Total Return
Source Lehman Brothers. First three months.
Telecommunications issues dragged down
sector-wide returns in 2000-2002. Their impact
should diminish, but something else will
probably fill the same gap in future years.