Deutsche Bank Says Junk Bonds Are a Buy, But Be Ready to Get Out

(Bloomberg) -- High-yield corporate debt is getting unfairly hammered and investors should use this opportunity to buy back in, according to Deutsche Bank AG’s chief international economist. They should just be prepared to exit at some point perhaps in mid-2018, he reckons.

“The strong performance in U.S. high yield in recent years has been driven by solid U.S. GDP growth, low U.S. inflation, low U.S. interest rates, negative interest rates in Europe and Japan, and QE money printing in Europe and Japan,” Torsten Slok wrote in a note to clients after getting questions about whether the current sell-off will cause a recession. "None of these factors have changed or are likely to change over the coming months."

Deutsche Bank Says Junk Bonds Are a Buy, But Be Ready to Get Out

Money managers pulled more than $2 billion from global exchange-traded funds tracking speculative-grade bonds last week, spurred by disappointing earnings from some issuers and a general concern about the scaling down of global monetary stimulus.

"This ongoing correction is likely a buying opportunity in credit," Slok wrote, rejecting the idea that the current retreat augurs a U.S. recession. The "real re-pricing" will come when U.S. inflation starts accelerating and the European Central Bank signals its exit, he said, expecting those dynamics to appear in the second quarter of 2018.

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