Analysis of high-yield bond investment strategy

The scale of high-yield bonds (also known as “junk bonds” overseas) has gradually increased and has become a special variety that cannot be ignored in my country’s bond market. At present, there are few studies on high-yield bonds in the market, and the studies that have been carried out can be divided into two categories. One is the comparison of high-yield bonds between China and the United States and related recommendations. The high-yield bond market in the United States, which started in the 1980s and grew up in the 1990s, is relatively developed. The pricing mechanism, investment institutions, and the legal disposal process after default are very mature. At the same time, there are also credit default swaps (CDS) and guaranteed debt certificates (CDOs). ) And other credit derivatives to make the pricing of high-yield bonds more market-oriented. The high-yield bond-trading open-end index funds (ETFs) in the US market are relatively large, providing a better tool for diversified investment in high-yield bonds. However, China’s credit bond market started late. The early stage of bond market development was mainly interest rate bonds. Credit bonds have been accompanied by rigid redemption, and the investment foundation for high-yield bonds is not yet sound. Beginning with the default of “Chaori Bond” in 2014, my country’s credit bond market has gradually normalized defaults, and high-yield bonds have gradually increased from the number to the scale. This leads to the second major category of research-the study of the descriptive statistical characteristics of my country’s high-yield bond stock market, including the nature of the high-yield bond issuer’s enterprise, rating distribution, industry, and whether the city investment bond and real estate bond are high-yield The main body of the debt, etc. These studies in the market have a high degree of similarity, and there are fewer studies on how to invest in high-yield bonds. This article will analyze the trend of high-yield bonds year by year, and compare it with treasury bonds, a benchmark for pricing in the bond market at the same time, in order to find some regular features that can provide references for institutional investors to participate in high-yield bond investments.

Review of the trend of high-yield bonds in various periods

The coupon rate of high-yield bonds is significantly higher than that of interest rate bonds such as treasury bonds. This article selects two sets of data to analyze the relationship between the trend of high-yield bonds and treasury bonds. The first group is the ChinaBond High-Yield Corporate Bond Net Price Index, ChinaBond High-Yield Medium-Term Notes Net Price Index and 10-year Treasury Bond Net Price Index, excluding the impact of coupons. The second group is low-rated (AA grade, the same below) ) The credit spread of industrial bonds and urban investment bonds and the yield to maturity of 10-year treasury bonds. Regarding data selection, there are three points to be explained: First, the 10-year treasury bond data is selected because the 10-year treasury bond is the most actively traded type of treasury bond, and its yield is more appropriate as the pricing benchmark. Second, because there is little research on high-yield bonds in China, it is currently difficult to find authoritative high-yield bond credit spread statistics. Most of the data used in the previous relevant literature was calculated by the researchers themselves, and the quality of the data is poor, so the use of low The credit spread of rating industrial bonds and urban investment bonds is replaced. This article mainly studies the factors affecting the timing of high-yield debt, and mainly observes the long-term trend, so this kind of substitution is acceptable in research. Third, the low ratings only include AA-level and not AA-level and below, mainly because the AA-level and below industrial bonds and urban investment bonds are basically credit bonds with some substantive default characteristics, which will disturb the study of this article, and its Credit spread data is more difficult to obtain from commonly used databases. The following article will analyze the relationship between high-yield debt and the trend of national debt year by year starting from 2014, the first year of my country’s credit bond default.

From January to July 2014, under a wide currency and wide credit environment, the yield of treasury bonds declined slightly, and the credit spread of high-yield bonds also declined. The trend of high-yield bonds was slightly stronger than that of treasury bonds. High-yield bonds have had an impact. From August to December, under the environment of wide currency and tight credit, the trend of treasury bonds was good, while high-yield bonds were affected by the adjustment of pledged bonds in December. Credit spreads rose sharply, and the trend of high-yield bonds was significantly weaker than that of treasury bonds.

From January to May 2015, under a wide currency and tight credit environment, the trend of high-yield bonds was similar to that of national bonds. However, from June to December, under a wide currency and credit environment, the trend of high-yield bonds in the early stage was similar to that of treasury bonds. Later, affected by the restart of initial public offerings (IPOs), their trend was significantly weaker than that of treasury bonds. Although high-yield bonds reacted slowly to bond selling behaviors such as fund redemptions, the damage was even more serious, triggering a sharp increase in the credit spreads of high-yield bonds.

From January to September 2016, under a wide currency and wide credit environment, the trend of high-yield bonds was basically the same as that of treasury bonds, except that the volatility of the credit spread of high-yield bonds was greater than that of treasury bond yields. From October to December, in a tight currency and tight credit environment, the net price index of high-yield bonds fell sharply, the credit spreads of low-rated high-yield bonds rose rapidly, and the trend of high-yield bonds was significantly weaker than that of treasury bonds, reflecting that bank wealth management was included in the MPA The assessment and the “Carrot Seal” incident of a certain brokerage brought a huge impact on high-yield bonds.

From January to October 2017, in a tight currency and tight credit environment, the yield of Treasury bonds rose sharply, while the credit spread of high-yield bonds rose first and then fell during the same period. Among them, the trend of high-yield bonds from June to August was stronger than that of national bonds. From November to December, the tight currency and credit environment continued to be maintained. Treasury bond yields continued to rise, high-yield bond credit spreads rose rapidly, and both high-yield bonds and treasury bonds tended to be weak.

In 2018, with a wide currency and tight credit environment, the yield of Treasury bonds fell sharply, while the credit spread of high-yield bonds rose all the way in the first half of the year, and slightly rose amidst the shocks in the second half. After a long period of tight credit, high-yield bonds have suffered a greater impact, and the annual trend is significantly weaker than treasury bonds.

In 2019, the overall currency and credit environment is wide. January-April is the period when the stock market rises sharply. Treasury bond yields have risen sharply. Over the same period, the credit spread of high-yield bonds has declined slightly, and the trend of high-yield bonds is stronger than that of government bonds. After May, with the decline in stock prices, market risk appetite declined, the yields of treasury bonds began to decline, and the credit spreads of high-yield bonds continued to decline. The trends of the two were roughly similar. In December, the credit spread of high-yield bonds rose again, and its trend was weaker than that of treasury bonds.

From January to April 2020, the wide currency and credit environment of the previous year continued, and the yield of 10-year treasury bonds fell rapidly. Under this circumstance, the credit spread of high-yield bonds passively widened, and the trend of high-yield bonds was weaker than that of treasury bonds. From May to October, it turned into a tight currency and wide credit environment. As the domestic economy stabilized, monetary policy became stable and neutral, credit spreads on high-yield bonds declined rapidly, while 10-year Treasury bond yields went up as a whole, and high-yield bonds trended significantly Better than national debt.

Summary analysis of high-yield debt timing

(1) The impact of currency credit cycles on high-yield bonds

It can be seen from Table 1 that from January 2014 to October 2020, the bond market has experienced multiple bull-bear market transitions in the past seven years. Among them, the trend of high-yield bonds was stronger than that of treasury bonds in four periods. They were in 2014. January-July 2014, June 2015-September 2016, January 2019-August 2019 and May 2020-October 2020. The monetary credit environment in these four periods is wide currency + wide credit, wide currency + wide credit, wide currency + wide credit, tight currency + wide credit. It can be seen that wide credit is most beneficial to high-yield bonds. Due to the increase in the scale of social financing and the growth rate of loans due to wide credit, commercial banks have increased their willingness to lend to enterprises. Issuers of high-yield bonds with previously difficult financing can temporarily alleviate the liquidity crisis by renewing bonds and applying for loans. Credit spreads on yield bonds have been able to decline, and the trend is stronger than that of treasury bonds. There were 5 periods when high-yield bonds were weaker than treasury bonds, which were August 2014-February 2015, March 2015-May 2015, October 2016-December 2017, and January 2018. -December 2018, September 2019-April 2020, the corresponding monetary credit environment is wide currency + tight credit, wide currency + tight credit, tight currency + tight credit, wide currency + tight credit, wide currency + Broad credit, four periods of which correspond to tight credit, verifies the previous conclusions. The impact of monetary policy on high-yield bonds is not so significant. In the two tight currency periods, the trend of high-yield bonds was stronger and weaker than treasury bonds once. The trend of high-yield bonds mainly depends on the credit policy environment: if it is in a tight currency and tight credit environment, the trend of high-yield bonds is weaker than that of government bonds; if it is in a tight currency and wide credit environment, the trend of high-yield bonds is stronger than that of government bonds.

(2) The impact of major events on high-yield bonds

Table 2 reviews the six emergencies that have had a significant impact on the high-yield bond market in the past seven years from January 2014 to October 2020. These events led to a rapid increase in the credit spread of high-yield bonds, and the trend was weaker than that of national bonds. Continuous observation reveals that the credit spreads of high-yield bonds have fallen to varying degrees within a few months after the occurrence of these events. After the emergence of emergencies that have a greater impact on the credit bond market, high-yield bonds are often subject to greater impacts, and yields rise rapidly and sharply. If the unexpected event occurs in the bond bull market stage, after the event gradually subsides, the credit spread of high-yield bonds will often decline by a large margin; if the emergency event occurs in the bond bear market stage, after the event subsides, the credit spread of high-yield bonds Still more difficult to move down. Therefore, when a risk event occurs in the bond bull market stage, after the event is fully fermented, the credit spread of high-yield bonds has risen sharply, a selection of high-yield bonds may achieve good returns.

(3) The cross-year effect of high-yield bond fluctuations

The credit spreads of high-yield bonds have almost risen to a certain extent at the end of each year, and will generally decline after the new year. The only exception is from December 2017 to January 2018, when it was a bond bear market stage, and the bond market investment atmosphere was relatively pessimistic. The corresponding credit spreads of high-yield bonds continued to rise until the first half of 2018, which was in line with the trend of national debt. Big gap.

The author believes that the logic behind this is: my country’s financial market is dominated by banks, and the annual bank credit line is limited. The credit line at the beginning of the year is often sufficient and the investment is relatively large. At the end of the year, the credit line of large commercial banks has almost been exhausted. However, the overall credit environment tends to shrink. High-yield bonds are more sensitive to the credit environment than interest rate bonds, so the credit spread at the end of the year has a certain degree of jump, that is, high-yield bonds have a cross-year effect. According to the pace of bank credit release and the credit bond market conditions, the winning rate of investing in high-yield bonds in January at the beginning of the year is even greater, while investing in high-yield bonds in December at the end of the year may suffer a certain loss.

In summary, it is more advantageous to invest in high-yield bonds in a wide credit environment. Monetary policy has a greater impact on interest rate bonds and a general impact on high-yield bonds. In the bond bull market stage, after a major adverse event occurs, the credit spread of high-yield bonds will generally rise. When the credit spread has risen a lot, the investment winning rate is greater, because the credit spread of high-yield bonds will likely decline after the event subsides. . In addition, it is more advantageous to invest in high-yield bonds at the beginning of the year, and the winning rate for investing in high-yield bonds at the end of the year is not high.

Share