SOURCE DDJ Capital Management, LLC
WALTHAM, Mass., July 29, 2014 /PRNewswire/ -- DDJ Capital Management, LLC, an institutional manager of high yield bond and bank loan strategies on behalf of investors worldwide, projects that the current benign environment in the broad high yield market will endure through the end of 2014 as capital markets continue to be supported by aggressive monetary policies that benefit debt instruments of all types.
There is little in the way of visible events to threaten the calm the market is presently enjoying, as low, stable rates and a "muddle-along" economy with the absence of any meaningful default activity typically factor favorably toward generating solid, "coupon-like" returns in the leveraged credit markets, according to DDJ's semi-annual market review.
"The late credit cycle behavior of today's bond and loan market will eventually lead to disruptions, which can then be exploited by active managers," said David Breazzano, DDJ's president and chief investment officer, in 2014 Half-Time Leveraged Credit Review and Outlook: The Calm Before the Calm. "As the credit cycle continues to mature and markets remain in a relatively calm state, the proportion of aggressive financings to overall issuance is likely to build, indicating a trend that may portend a looming market downturn."
The current leveraged credit market will likely follow a similar path as the 1993-98 and 2003-07 markets and the relative "calm" investors are currently enjoying will likely precede a proverbial storm – but the storm may yet be a year or two away, according to Breazzano.
Over the first six months of 2014, high yield bonds and leveraged loans added to last year's strong performance, generating competitive returns when compared with other fixed income as well as equity investments. Unlike last year at this time, the leveraged credit market is relatively steady, having absorbed the first salvos in the Fed's tapering actions, according to DDJ. While the Fed is clearly seeking to return the capital markets to an autonomous state, the timing of a return to normalcy seems years away given an anemic economy and monetary actions that have failed to spur significant near-term GDP growth.
"We view the remainder of 2014 with cautious optimism and, through our fundamental, credit-intensive investment process, will continue to do what we always do-take prudent risk for an appropriate expected return," Breazzano said. "When the storm hits, as it inevitably will, we expect to be ready to withstand the blows and take advantage of the disruptions the storm will undoubtedly leave in its wake."
To view the DDJ paper, 2014 Half-Time Leveraged Credit Review and Outlook: The Calm Before the Calm, please click here:
DDJ's U.S. opportunistic high yield and strategic income plus strategies rank in the 1st and 12th percentiles, respectively, for the three-year period ended March 31, 2014, according to eVestment, a leading source of investment performance for institutional investors.
About DDJ Capital Management, LLC
DDJ Capital Management is an institutional manager of high yield bond and loan strategies based in Waltham, Massachusetts. Established in 1996, DDJ currently manages approximately $8 billion on behalf of corporate and public retirement funds, insurance companies, endowments, foundations and family offices worldwide. DDJ's investment team consists of 17 investment professionals highly specialized in the areas of credit research, legal analysis, bankruptcy law, portfolio management, trading and business operational improvements. For more information, please visit www.ddjcap.com.
Past performance is no guarantee of future returns.
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