DWS Investments: Yields down, spreads up in attractive high-yield space; coupon clipping ahead

By Andrea Heisinger

New York, June 14 - There will be some changes in the high-yield bond market in the coming months, including changes in spreads and coupons, a source said at the DWS Investments press briefing on Tuesday.

"I think we're going to see some coupon clipping in the next six months, but no spread tightening," said CFA and managing director Gary Russell.

He later said in reference to the coupon clipping that they're looking at "a 3.5% return in the next six months."

Yields in the space at the beginning of the year were about 7.4% and spreads about 530 basis points. Now yields are roughly 7.2% and spreads about 550 bps, Russell said.

Defaults are near historical lows, and until recently, two-thirds of new issues were for refinancing.

"We think defaults will stay at 1% to 2% for the next couple of years," he said.

The market itself is "pretty good - not too exciting but attractive compared to other asset classes."

Russell said that DWS Investments is seeing single B rated paper as the best investments, while they are selective on CCC names and constructive on BBs.

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