If clients want to invest in corporate bonds, they should consider telecom companies and banks. And, they should focus on high yield.
So says John Braive, vice-chairman of global fixed income at CIBC Asset Management. He manages the Renaissance Canadian Bond Fund.
“We’re seeing good earnings results coming from telecoms,” he notes. Plus, “the credit and reported earnings we’ve been seeing from the banks look very good, and we think the spreads are relatively generous.”
In the telecom sector, there’s lots of activity. In March, Braive explains, “there [was] a spectrum auction going on in Canada”—these auctions are held by the government to dole out airwave-signal rights to telecom companies.
As a result of that auction, he expects major players such as Telus and Bell to be active in the bond marketplace. Both companies won provisional spectrum licenses; Wind Mobile, Videotron and Bragg Communications did as well.
Braive also favours high-yield. “In the U.S., yields moved out in January to 531 basis points over U.S. treasuries, and [they’ve] since rallied to 430 basis points. So we’ve been active in that marketplace.”
So, he recently purchased the new 10-year Bombardier bond at a 7.5% coupon. “And, there are new issues coming [out] in that area that we’ll look to add to our portfolio. We think [there’s] very good value currently.”
But buyers beware: there’s currently some risk in owning high-profile corporate bonds, due to the growing volume of takeover activity, says Braive. “We’re leery of which corporates we own because we don’t want to have a bent risk impact our portfolio.”
Take Tim Hortons, he adds, which saw the spread widen on its securities after it was taken over by Burger King last year. Braive didn’t have exposure in his portfolio prior to the company’s takeover, but says he bought some high-yield issues afterward.