High Yield Credit, Equities and International markets all moved higher in the first quarter of the year but Credit and International markets may be flashing warning signs of trouble to come.
In our last commentary in April we warned it was time to pay attention to risk. Since then global equities have suffered steep declines, with S&P 500 losing -6.7% and the International EAFE index falling -10.0% at their worst levels. Where is the opportunity now?
With NYSE volumes at the lowest levels of the year for the past week, equity markets are marking time until tomorrow’s Jackson Hole Economic Summit where equity investors are clinging to any hint of fresh stimulus from Fed Chairman Ben Bernanke.
Let’s face it, in a zero interest rate world, yield is hard to come by. Maybe that’s why investors have been stampeding into high yield bonds this year. We certainly aren’t complaining. The long side of our Long-Short High Yield Bond strategy Alternative Income has benefited. But there are emerging signs that it may be time to start reducing risk, and consider opportunities on the short side.