Marty Fridson Deflates the High-Yield Bond Balloon (Podcast)
In an article in the January/February 2014 issue of the Financial Analysts Journal, Martin Leibowitz, Anthony Bova, CFA, and Stanley Kogelman demonstrated that over multi-year horizons, duration-targeted bond yields converge toward their starting yields within a reasonably narrow range. We talked to Leibowitz about his research in March. Martin Fridson, CFA, and his coauthor Xiaoyi Xu were interested in digging further into the results that Leibowitz and his team found. Fridson and Xu’s resulting article, “Duration Targeting: No Magic for High-Yield Investors,” appears in the May/June 2014 issue of the FAJ. I talked to Fridson about his research for our ongoing FAJ author interview series.
“The work had not really been done for lower-rated — or high-yield — bonds, so that was the question we were interested in taking up,” Fridson said. He and Xu found that Leibowitz’s results didn’t hold up for high-yield bonds. “What we found is that there’s a very wide range and low predictability of your return compared to an investment-grade portfolio.” He notes that his results and Leibowitz’s results combine to indicate that more research is needed for both the investment-grade and high-yield bond universes. “There’s still lots more to discover and lots more insight to be found in this asset class,” he said. To hear the rest of Fridson’s thoughts on the issue, listen to the full interview (above) or download the MP3.
CFA Institute members can access the article on the CFA Publications website. Fridson will also be speaking at the upcoming CFA Institute Conference: Fixed-Income Management 2014 in Huntington Beach, California, which is open to CFA Institute members and non-members.
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