By CFA Institute Contributors:
By Julie Hammond, CFA
“The media loves bubbles, but there is no universally accepted definition of a bubble, and some economists even deny bubbles exist,” said Martin Fridson, CFA, CEO of FridsonVision LLC, at the Fixed-Income Management 2012 conference in San Francisco last week. “I think if it looks like a bubble and walks like a bubble and pops like a bubble, it is probably a bubble,” Fridson said.
But that does not mean that the high-yield bond market is currently a bubble. Fridson took the audience through some typical arguments pundits have recently used to call the high-yield market a bubble. None of these arguments hold up under closer examination and scrutiny.
Fridson looked at the yield-to-worst (YTW) — the most conservative measure of yield — and found that today’s YTW for the BoA Merrill Lynch U.S. High Yield Master II
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