RT Journal Article
SR Electronic
T1 Original Issue High-Yield Bonds
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 96
OP 101
DO 10.3905/jpm.2007.698038
VO 34
IS 1
A1 Martin S Fridson
A1 Karen Sterling
YR 2007
UL https://pm-research.com/content/34/1/96.abstract
AB In the past full market cycle, original issue high-yield bonds delivered no material total return premium over default risk-free Treasuries. This represents a bona fide market inefficiency that proved exploitable by one group engaged in actual market transactions; the corporate sellers of new issues escaped paying a default risk premium. Among the five complementary rather than mutually exclusive factors identified here that may explain this anomaly are: unawareness of the underperformance of the OI segment; a focus on security selection; a lottery ticket effect; and the mirage of remedy based on yield. The discussion gets to the heart of the premise on which the high-yield investment concept was marketed at the dawn of its modern era in the late 1970s.TOPICS: Risk management, fixed-income portfolio management, portfolio construction