The timing may be right for an insturment to gain broad exposure to the high-yield market. Diane Vazza, head of global fixed-income research at bond rating agency Standard & Poor’s in New York, said flows into high-yield mutual funds have jumped in recent months. She added that she has received an increase in 'reverse enquiries' from asset managers looking for new high-yield issues to invest in. “They have a lot of cash to invest and they would like to see more supply,” she said.
With an index, investors who do not feel they have sufficient high-yield credit-picking skill can still get broad exposure to the asset type. The strongest users of HYDI-100 so far, said Long, have been high-yield asset managers going long on the index, followed by fixed-income asset managers seeking to allocate more of their portfolios to high-yield.
HYDI-100 is available in funded and unfunded forms, which allows asset managers restricted by their guidelines in their use of swaps to use the index.
Collateralised bond offering (CBO) managers have also been using HYDI-100 to build assets quickly in their structures' “ramp-up” stage. Buying assets up-front hedges against the risk that changes in the market will raise the price of the credits that a CBO manager needs to buy.
High-yield analysts and traders at other investment banks in New York appear not to be paying much attention to HYDI-100 yet. Many high-yield tradable indexes have come to market in the last ten years and all have failed, they said. But if HYDI-100 lasts, other bankers will start to look at it more closely.
The week on Risk.net, July 7-13, 2018Receive this by email