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Neuberger Berman shrugs off fears regarding junk bond market

Sydney

ONE of the world's largest employee-owned money managers, which has started more high-yield bond funds in recent years, is shrugging off fears that a global economic slowdown and trade tensions will hurt the asset class.

"The market is very attractive, given that the fundamentals are still very good and corporate credit quality is still good," Vivek Bommi, a senior portfolio manager at Neuberger Berman with US$323 billion in assets, said in an interview. A recession combined with a sharp increase in credit defaults are a couple of years or more away, according to London-based Mr Bommi, whose Neuberger Berman Global High-Yield Bond Fund beat 87 per cent of its peers in the past year.

The escalation in the US-China trade spat in recent weeks has brought pain to risk markets, and high-yield debt has been no exception. Other observers have cautioned that the effects may linger. UBS Group AG has said that junk note spreads in the US may widen given the severity of the escalation. Firms from Bank of Singapore to JPMorgan Private Bank have cited mounting caution in the Asian debt market due to the trade tensions.

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The friction has so far weakened but not derailed a rally in global junk bonds in 2019. More dovish turns by the Federal Reserve and other central banks around the world, amid a moderating economic expansion this year, have lured investors back to risk assets that had sold off in 2018. Despite falling in recent weeks, high-yield bonds globally have returned 6.7 per cent so far this year, a Bloomberg Barclays index shows.

New York-headquartered Neuberger Berman was finding good value in bonds of cable and wireless telecom companies whose earnings and cash flow weren't necessarily as cyclical as those of manufacturing firms, Mr Bommi said.

"In the last 10 years, a lot of the more aggressive issuance that may have gone into the high-yield market has gone into other markets like private credit or loan market," he said. "The market itself has gotten much more healthy."

Neuberger is tapping demand from Australian investors to raise as much as A$476 million (S$453 million) for the NB Global Corporate Income Trust that can invest in up to 350 corporate bonds rated BBB or below, denominated in dollars, euros or pounds. The trust has returned 5.45 per cent since its inception in September to the end of April. BLOOMBERG