COVID-19 - Perception Versus Reality

Posted on August 5, 2020

The market’s perception of the current state of the pandemic can change quickly and result in heightened volatility. For example, the perception that certain states may have opened too soon or that a second wave of the virus is imminent, and thus economic pullbacks are on the horizon, can increase market volatility significantly. Such changes in perception are often driven by the latest headlines, which can be misleading and therefore do not represent reality.

As prudent investors, we need to filter out the day-to-day noise and focus on the factors that will determine whether the economic reopening can continue or broad pullbacks will be needed in certain areas. In this regard, I believe that the most important factor to monitor in a specific region is hospital capacity utilization resulting from COVID-19 patients, in particular ICU bed capacity. Fatalities are of course the most important metric that we as a society must strive to minimize; however, fatalities typically rise after an increase in ICU beds and ventilator usage, and will thus lag changes in hospital capacity.

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Strong High Yield Opportunities and Index Distortions

Posted on April 15, 2020

DDJ Capital Management recently recorded an audio market update with firm founder, Portfolio Manager and CIO David Breazzano to discuss the extreme volatility and liquidity challenges in the high yield market. A question was asked about where the team is currently finding strong risk-adjusted investment opportunities.

Listen to Mr. Breazzano’s response. 

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Rating Downgrades and the Effect of Fallen Angels

Posted on April 8, 2020

DDJ Capital Management recently recorded an audio market update with firm Founder, Portfolio Manager and CIO David Breazzano to discuss the extreme volatility and liquidity challenges in the high yield market. A question was asked about the downgrading of BBB-rated bonds (aka “fallen angels”) into the non-investment grade universe and what kinds of disruptions and opportunities this activity will create.

Listen to Mr. Breazzano’s response from the call on March 27, 2020. 

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CIO's Perspective: 2019 Half-Time Leveraged Credit Review and Outlook

Posted on July 26, 2019

1st Half 2019 Review

After experiencing the worst quarterly performance in over three years in the fourth quarter of 2018, the high yield market bounced back in 2019, particularly in the first quarter, generating the strongest first half performance since 2009. A major driver of this rebound in performance occurred at the beginning of the year when the U.S. Federal Reserve (“the Fed”) signaled a more accommodative monetary policy stance going forward. 

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CIO’s Perspective: 2018 High Yield Market Review & 2019 Outlook

Posted on January 18, 2019

2018 HIGH YIELD MARKET REVIEW

Following two years of steadily declining spreads and strong returns, high yield bond performance turned negative in 2018. U.S. tax reform, healthy economic growth and tightening monetary policy helped to push Treasury yields higher for most of the year. The rise in yields led to weak performance for all fixed income products, including high yield bonds, which produced a loss of -2.27% following a volatile fourth quarter.

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CIO’s Perspective: 2018 Half-Time Leveraged Credit Review and Outlook

Posted on July 5, 2018

1st Half 2018 Review


During the first half of 2018, high yield bonds produced a modest gain of 0.08% (as measured by the ICE BofA Merrill Lynch U.S. High Yield Bond Index (“HYBI”)), representing the worst first half performance by the asset class since the financial crisis of 2008. 

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CIO’s Perspective: 2017 Leveraged Credit Review and 2018 Outlook

Posted on January 4, 2018

2017 High Yield Market Review

For 2017, high yield bonds produced a gain of 7.48% (as measured by the ICE BofA Merrill Lynch U.S. High Yield Bond Index (“HYBI”)), representing the second consecutive year where the total return of the HYBI exceeded its start-of-the-year coupon. As reflected in Exhibit 1 below, strong gains during the first six months of the year largely drove high yield bond performance in 2017. 

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CIO’s Perspective: 2017 Half-Time Leveraged Credit Review and Outlook

Posted on July 5, 2017

1st Half 2017 Review

During the first half of 2017, seemingly unwavering economic optimism and sustained accommodative monetary policy by many developed market central banks outside of the U.S. led to strong performance in the high yield market. This economic optimism, largely attributed to expected pro-growth policies from the new U.S. presidential administration, has continued largely unabated despite no significant new policies actually being implemented.

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CIO’s Perspective: 2016 Leveraged Credit Review and 2017 Outlook

Posted on January 3, 2017

High yield bond performance in 2016 (as measured by the BofA Merrill Lynch U.S. High Yield Bond Index (“HYBI”)) recovered from early losses to post the asset class’s third highest annual total return during the past twenty years (17.49%), trailing only 2009 (57.51%) and 2003 (28.15%), respectively. As Exhibit 1 below shows, after generating an impressive gain of 9.32% through the first six months of the year, high yield bonds added an additional 7.47% in 2H16. High yield bond spreads compressed considerably in 2016, tightening a total of 273 basis points, including a 199 basis points decline in the second half of the year (“2H16”).

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CIO’s Perspective: 2016 Half-Time Leveraged Credit Review and Outlook

Posted on July 5, 2016

1st Half 2016 Review

In early 2016, concerns about global economic growth, including within the United States, placed pressure on commodity prices and resulted in a sell-off in the leveraged credit market. However, the market’s mood shifted as constructive news flow in the form of more accommodative monetary policy from central banks, improving economic conditions and a recovery in oil prices began to positively affect the psyche of market participants.

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