At an Investment conference in New York on July 15th, billionare Carl Icahn told the audience of an impending high yield bond market crash. But top bond manger Mark Notin is not so concerned.
Icahn recently stated that high yield debt is “extremely illiquid, and extremely overpriced,” according to Bloomberg. But Notkin, who has managed a high-yield bond portfolio that has outpaced 99% of competitors for the past three years, thinks otherwise. He says high-yield bonds are still priced normally compared to Treasury bonds.
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“Notkin’s usual strategy is to compare the yield on the junk bond index to the earnings yield on the S&P 500 to decide which asset class is the most attractive,” Bloomberg reports. “[His] fund has been trimming its holdings of CCC-rated bonds, the lowest level in the junk bond universe. Notkin said when his stock weightings are high, as they are now, he cuts his CCC allocation to reduce the fund’s risk profile.”
Notkin says he’s not wagering on where oil prices will head — no one knows that, he says. But he is confident that low inflation rates will allow interest rates to move up gradually, part of why he’s comfortable with high yield debt.