February High Yield Corporate Bond Review

Groundhog Day

with Randy Masel, Managing Director (March 4, 2015)

There are a lot of notable dates packed into the shortest month of the year. President’s Day, Valentine’s Day, and Groundhog Day all fall in February. For high yield investors, this past February (and January for that matter) felt more like the movie Groundhog Day as the high yield market closely mirrored the first two months of last year. For the record, the high yield market posted a 2.39% total return in February, with the yield to worst call falling from 6.45% to 5.91% and the spread to worst dropping 76 basis points to +458 basis points (source: Bank of America Master II High Yield Index). This performance came as interest rates took a U-turn north from their January plummet; rates on the five year Treasury rose from 1.18% to 1.50% on the month. Equities were buoyed by the European Central Bank’s long-awaited quantitative easing program, a temporary solution to Greece’s bailout problems, and an earnings season that proved not as bad as feared. The S&P posted a 5.75% total return for the month of February.

The high yield market in the first two months of 2015 feels eerily similar to the start of 2014: a gain of .7% or so in January followed by a robust 2%+ gain in February. The quest for yield in a low rate environment drove investors in each year to higher yielding corporate product. So far in 2015, $10.8 billion has flowed into high yield mutual funds and ETFs. At some point, it would be helpful if the high yield market stops following last year’s playbook as things soured in the second half of 2014. In fact, all of high yield’s 2.5% return was effectively earned in the first two months of the year.

I am not quite ready to declare the party in high yield over but with a 3% return year to date the rest of the year is unlikely to be quite as much fun. If the market can just earn its coupon over the remaining ten months of the year, it would post a quite healthy 8.7% return for 2015. Moreover, most of the concerns hanging over the financial markets at the beginning of the year have not gone away: Greece has not been fixed and still remains in danger of falling out of the Euro; oil prices have stabilized but have not rebounded from very depressed prices, and the prospects for a Fed rate hike in the second half of the year remain. Fears of higher rates spooked the markets last year, prompting investors to pull money out of high yield funds. On the flip side, given paltry yields in Europe, Japan and most other parts of the world, it seems that any increase in U.S. interest rates in the intermediate to long end of the Treasury curve will be muted. Hopefully, investors will have learned the lessons of last year, keep calm and let their bonds carry on.


Randy Masel manages a proprietary high yield corporate bond strategy that he created and launched when he joined Granite Springs Asset Management in January 2014. Mr. Masel has more than thirty years of experience in the credit markets, as a banker, credit analyst, and a portfolio manager. He began his career on Wall Street as a corporate bond analyst for Paine Webber, Inc. There, he held several senior level research positions, ultimately becoming Managing Director responsible for the firm’s entire U.S. credit research department. Prior to joining Granite Springs, Mr. Masel was a portfolio manager and credit analyst with JAE Credit. He also formerly held senior level positions with Millennium Partners, LP, Moore Capital Management, and James Caird Asset Management. Mr. Masel holds a BA from Washington University and a MBA from Harvard University. Mr. Masel also holds the FINRA Series 65 license.

Granite Springs Asset Management, LLC is a privately held SEC registered investment advisor that specializes in fixed income portfolio management and tactical asset allocation investment strategies for private clients, family offices, financial advisers, insurance companies, pension plans, and other institutional investors. The investment philosophy at Granite Springs is based on two principal beliefs; that asset allocation is the most important investment decision and; that disciplined risk management leads to superior returns over time.

Granite Springs Asset Management LLC is a Registered Investment Adviser with the U.S. Securities and Exchange Commission and qualified to do business in various state jurisdictions where required. Nothing in this article shall constitute investment advice. This article is for informational purposes only and the opinions expressed are the author’s own.

Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The opinions expressed are those of the Granite Springs Asset Management LLC Investment Team. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions. Material presented has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Nothing herein should be construed as a solicitation recommendation or an offer to buy, sell or hold any securities, other investments or to adopt any investment strategy or strategies. This material is for educational purposes only. Granite Springs Asset Management LLC is an investment adviser registered with the US Securities and Exchange. Registration does not imply a certain level of skill or training. More information about Granite Springs Asset Management LLC can be found in its Form ADV which is available upon request.