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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (99202)	6/12/2003 4:34:57 PM
From: Pogeu Mahone	Read Replies (1) \| Respond to of 132070

uclick.com

To: Knighty Tin who wrote (99202)	6/13/2003 1:04:47 PM
From: Mark Adams	Respond to of 132070

High Yield: Technicals Raging, Fundamentals Unclear, Structural Issues Remain The market is ga ga for high yield: credit squeeze ending, defaults down, high grade yields unattractive, and a perception that the economic worst is behind us. The fundamental story is still not intact: a deflationary, low growth environment is not good for high yield. Structural problems remain: refinancing risk, illiquidity, and an inadequet credit research infrastructure. High yield is at the top of its trading range since 1998. Stick with higher tier credits. We recently spoke at the North West Taxable Bond Club Conference. High Yield is enjoying a great run, but long-term issues remain. Refinancing risk is the key problem, but trading illiquidity, capital structures top-heavy with levered loans, asymmetric risk, and inadequate credit research infrastructure are significant. Banks got greedy for yield in the 1990's and took balance sheet market share away from high yield bonds. Secured term debt starts maturing in five years, so the big slug of deals done in the mid to late 1990's is coming due. If and when these deals collapse--an all too frequent occurrence--bondholder recovery is very low. 100-year floods have washed over high yield about every two years: the SE Asia crisis, Greenspan's irrational exuberance, Long Term Capital, Y2K, tech bubble, and the liquidity squeeze last year. Every time they take out more bonds. Mean reversion does not work when bonds can go into default--high yield risk is asymetrical. The BB sector had outperformed over the last 16 years through two major cycles. Stick to the higher tier credits. Roger E. King rking@CreditSights.com creditsights.com