Worst Selloff

“I’m long high yields right now,” Gundlach, the founder of Los Angeles-based DoubleLine Capital, which oversees $73 billion, said in an April 28 interview on Bloomberg Television. “They’ve done quite well lately.”

Gundlach went on to say he’s looking to short two-year German notes, which yielded minus 0.22 percent at 10 a.m. New York time. The yield on five-year securities was 0.04 percent.

Investors got a wake-up call last week, when 142 billion euros was wiped off of euro-area government debt in the worst selloff since at least 1993.

Globally, junk bonds have outperformed government debt with a 4.4 percent return this year. That’s a reversal from 2014, when the lowest-rated bonds underperformed by the most since the financial crisis.

Part of the attraction has to do with the advantage of junk-bond yields, which have risen in the past year as those on government debt kept falling. Speculative-grade securities yielded an average 6.37 percent last week, versus 0.99 percent for developed-market sovereign bonds tracked by Bank of America.

‘Very Tricky’

High-yield bonds represent “some of the best strategies to generate total return in today’s low-return environment,” said Payson Swaffield, the London-based chief investment officer for fixed income at Eaton Vance Investment Managers, which oversees $300 billion.

Junk bonds aren’t the only higher-risk assets in greater demand. Michael Riddell, a money manager at M&G Investments, which oversees $411 billion, bought local-currency bonds issued by Colombia and Thailand for the first time this year.

AXA SA, France’s biggest insurer, will boost holdings in “illiquid” assets such as real estate and infrastructure projects to 20 percent from 15 percent last year, according to Chief Investment Officer Laurent Clamagirand.

“It’s very tricky” for insurers, said Bruce Porteous, an investment director for insurance solutions at Standard Life Investments, which oversees about $370 billion. They’re making a shift because “they can’t earn enough money on the assets they hold to provide the benefits that they offer.”

Fewer Options

Giving up on government bonds in Europe may still be premature, said Stefan Kreuzkamp, the Frankfurt-based chief investment officer for Europe, the Middle East and Africa at Deutsche Asset & Wealth Management. That’s because the ECB’s debt purchases have just gotten started.

“German 10-year bond yields could go to zero,” said Kreuzkamp, whose firm oversees about $1.25 trillion. “We expect further gains for 2015. The same is true for peripheral bonds such as those issued by Italy and Spain.”

Yields on German 10-year bunds, which were closer to 1.5 percent a year ago, were at 0.47 percent on Tuesday.

At the same time, the prospect of the Federal Reserve raising interest rates in the U.S. this year may ultimately sap demand for riskier assets such as junk bonds.

For an increasing number of investors, there are few good choices left as six years of easy-money policies by global central banks inflated prices of almost every asset imaginable.

A record 84 percent of professional investors in a Bank of America survey released in April said bonds were overvalued. More than half also thought both stocks and bonds are too expensive, the most in 12 years.

“There are very few assets out there that you look at and think are cheap,” said Chris Rule, chief investment officer at London Pension Funds Authority, which manages $7.3 billion.

First « 1 2 » Next