Deutsche Bank Private Wealth: Junk bonds may outshine high-grade bonds

By Andrea Heisinger

New York, Jan. 19 - High-yield bonds are expected to outperform those on the investment-grade side as there is a window of opportunity for risky assets, a source said at the Deutsche Bank Private Wealth Management outlook for capital markets on Wednesday.

The bond market is not in a bubble, said chief investment strategist Larry Adam.

"If interest rates rise a full 1% in the next 12 months in the Treasury market it will cost investors $250 billion. It's hard to call that a bubble," he said.

Investors continue to search for yield and are looking for cash flow. It's the lowest yield in 60 years and people are wanting in, Adam said.

Bond market portfolios are looking for high-yield and emerging market bonds as spreads continue to narrow, he said.

"We're not seeing a lot of clients bailing out of fixed-income portfolios," said head of fixed income trading and research, Gary Pollack. "In our portfolios, we're going into more equities and other asset classes more."

Financial bonds are still attractive, said Owen Fitzpatrick, head of U.S. large capital and small capital equity teams.

Many large banks and others held back on selling bonds in 2010 because of financial reform issues, he said. Credit spreads have improved in the past few months and financials have a place in portfolios, he said, adding that Deutsche Bank likes the group as a whole.

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