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It Begins - Managed High Yield Bond Fund Liquidates After 17 Years
Since inception in June 1998, UBS' Managed High Yield Plus Fund survived through the dot-com (and Telco) collapse and the post-Lehman credit carnage but, based on the press release today, has been felled by the current credit cycle's crash. After 3 years of trading at an increasingly large discount to NAV, and plunging to its worst levels since the peak of the financial crisis, the board of the Fund has approved a proposal to liquidate the Fund. While timing is unclear, this is the worst case for an increasingly fragile cash bond market as BWICs galore are set to hit with "liquidty thin to zero."
Having survived 17 years...
It's Over... (as The Fund Statement reads):
Managed High Yield Plus Fund Inc. (the "Fund") (NYSE:HYF) announced today that the Board of Directors (the “Board”) of the Fund has approved a proposal to liquidate the Fund in 2016, subject to shareholder approval.
After careful deliberation and a thorough review of the available alternatives, and based upon the recommendation of UBS Global Asset Management (Americas) Inc. (“UBS AM”), the Fund’s manager, the Board has determined that liquidation and dissolution of the Fund is in the best interests of the Fund. A proposed plan of liquidation will be submitted for the approval of the Fund’s shareholders at a special shareholders meeting of the Fund, which will be scheduled to be held in April 2016. If the shareholders approve the proposed plan, the liquidation and dissolution of the Fund will take place as soon as reasonably practicable, but in no event later than December 31, 2016 (absent unforeseen circumstances).
Further information regarding the liquidation proposal, including the plan of liquidation, will be included in the proxy materials that will be mailed to the Fund’s shareholders in advance of the shareholders meeting.
* * *
...discussing illiquid corporate credit markets is easier if you find yourself among polite company. You see, the lack of liquidity in the secondary market for corporate bonds is a somewhat benign discussion because although it unquestionably stems from a noxious combination of regulatory incompetence and irresponsible monetary policy, myopic corporate management teams and the BTFD crowd, not to mention ETF issuers, have also played an outsized role, so there’s no need to lay the blame entirely on the masters of the universe who occupy the Eccles Building and on the "liquidity providing" HFT crowd that’s found regulatory capture to be just as easy as frontrunning.
But while explanations for the absence of liquidity vary from market to market, the response is becoming increasingly homogenous. Put simply: market participants are simply moving away from cash markets and into derivatives. Where market depth has disappeared, it’s become increasingly difficult to transact in size without having an outsized effect on prices. This means that for big players - fund managers, for instance - selling into ever thinner secondary markets is a dangerous proposition. And not just for the manager, but for market prices in general.
In Treasury markets, traders have turned to futures to mitigate illiquidty...
...while corporate bond fund managers utilize ETFs and other portfolio products to avoid trading the underlying assets...
With the stage thus set, Bloomberg has more on the move to smaller trades and cash market substitutes:
Sometimes less is more. At least according to investment managers trying to navigate Europe’s credit markets.
TwentyFour Asset Management capped a bond fund to new investors at 750 million pounds ($1.2 billion) and JPMorgan Asset Management, which is marketing a 128 million-pound fund, said smaller investments are more flexible in a sell-off. Other managers are also limiting the size of their trades and using derivatives to avoid getting trapped in positions.
It’s become more difficult to buy and sell securities as Greece’s financial crisis curbs risk taking and dealers scale back trading activity to meet regulations introduced since the financial crisis. The Bank for International Settlements warned of a "liquidity illusion" in June because bond holdings are becoming concentrated in the hands of fund managers as banks pull back.
"Liquidity is generally poor in corporate bond markets and in the U.K. market it’s thin to zero," said Mike Parsons, head of U.K. fund sales at JPMorgan Asset Management in London. "You don’t want to be in a gigantic fund where there’s potential for a lot of investors rushing for the exit at the same time. Smaller funds are more nimble."
"Without enough strong liquidity, it’s hard to execute bond trades in sufficient size or price to move portfolio risk around quickly or cheaply," he said. "The bigger the position, the harder it is to find enough liquidity to sell it or buy it."
Liquidity in credit markets has dropped about 90 percent since 2006, according to Royal Bank of Scotland Group Plc. That’s because dealers are using less of their own money to trade as new regulation makes it less profitable.
Euro-denominated corporate bonds got an average of 5.3 dealer quotes per trade last week, up from 4.5 recorded in January and compared with a peak of 8.8 in 2009, according to Morgan Stanley data. That’s based on dealer prices compiled by Markit Group Ltd. for bonds in its iBoxx indexes.
Liquidity is especially bad in the U.K. corporate bond market, which is being abandoned by companies looking to take advantage of lower borrowing costs in euros and investors seeking securities that are easier to buy and sell.
NN Investment Partners said it seeks to manage difficult trading conditions by diversifying positions and capping trade size. The Netherlands-based asset manager avoids owning large concentrations of a single bond and uses derivatives such as credit-default swaps or futures that are easier to buy and sell, said Hans van Zwol, a portfolio manager.
"We really want to stay away from positions we can’t get out of," he said.
The conundrum here is that the more reluctant market participants are to venture into increasingly illiquid cash markets, the more illiquid those markets become.
And here are the fund's largest holdings...
* * *
Of course, this should not be a total surprise, in light of the near-record up/downgrade ratio...
Credit-rating firms are downgrading more U.S. companies than at any other time since the financial crisis, and measures of debt relative to cash flow are rising.
Standard & Poor’s Ratings Services downgraded U.S. companies 297 times in the first nine months of the year, the most downgrades since 2009, compared with just 172 upgrades.
Deteriorating fundamentals...
U.S. companies have increased borrowing to levels exceeding those just before the financial crisis, as firms pursue big acquisitions and seek to boost stock prices by buying back shares. According to one metric, the ratio of debt to earnings before interest, taxes, depreciation and amortization for companies that carry investment-grade ratings, meaning triple-B-minus or above, was 2.29 times in the second quarter. That’s higher than the 1.91 times in June 2007, just before the crisis, according to figures from Morgan Stanley.
“We’re seeing more widespread weakness across more industry sectors in the U.S.,” Ms. Vazza said. “It’s become broader than just the commodity story.”
“The metrics that you measure health and credit by have peaked a while ago,” said Sivan Mahadevan, head of credit strategy at Morgan Stanley. “They are beginning to deteriorate.”
* * *
And as we noted earlier, the credit cycle has well and truly rolled over...
And no lesser market veteran than Art Cashin is concerned, What are the signals you are looking for to stay on top in such a market?
I continue to monitor the high yield market and see where that goes. The high yield market has been of some concern of the last several weeks. If that begins to show appreciable weakness than I would think the caution flags stay up.
Charts: Bloomberg
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The end is NEAR....again
I can't take much more of this.
I've got extra beer and popcorn, am willing to share :D :D :D
LOL - they hold Charter communications bonds (CHTR) that mature in 2020 - that should be about the time they declare BK after their Time Warner merger debt balloon implodes...
That company is run by a bunch of serious short bus, window lickers....
(edit) - oh i forgot, the current C-level management team at charter will have pulled the ripcord on their golden chutes WAY before this POS implodes. Put that in the MF'ing books...
This is all just foreplay until GLCN collapses, even their junk rating will just be a tease.
so some high yield became no yield, can you say fracker, cracker?
How many times now has "It Begun"?
The DJI has dropped it's 1st stage solid propellent boosters and punched a 1000pts into the stratosphere in only 3 weeks, using a new propellent tagged "instant rocket fuel" made from thin air and requires absolutely no underlying resources. A new alchemy. Something has replaced the blood to gold alchemy that stunk up far off places with bunches of dead people who hadn't done anything wrong and is anybody asking why?
Has GM been selling the shit out of cars?
Has Apple's iBling hypno-frenzied penniless, yet dedicated and credit worthy low self esteemed American cult-mob been shaking the shekels for shiny white Gadgets made someplace that is "not" America, someplace that does not pay into FICA and IRS accounts, someplace that maybe we should offshore, as well, those goat humping monkeys we employ in our political class and endure on C-SPAN?
Maybe that's just too big a concept to fit in a 3 x 5 handheld esteem box.
But I had time to buy another black scary gun and reach my silver goal. Now I have a new goal and want a scarier blacker gun. It is fun if you think differently.
im not saying the thesis is wrong, but going by the chart above.. total NAV of the fund are <$150(?) if that's the case, this is hardly a liquidation that will 'crush' the market. frankly, depending on how big the discount to NAV is, it may be a buy (the stock that is), as the realized discounts to mark may be less..
You are way too logical and obviously have a nasty tendency towards factual thinking. You don't belong here. Green arrow.
5 Stars-you're right. The economy is an equation with unknown variables and applying logical thinking is irrational.
That's some profound Keynesian shit right there. You sure you don't work for government? They'd love you.
The only unknown variable, cause its a "double secret", and nobody on CSPAN thinks the FED should be challenged on its lack of reasoning, is money supply.. It is the cornerstone of the big lie that don't get printed on the FMOC minutes, unless those occasions when a board member suggests shorting the dollar, treasuries and then rebalancing, at the same time, by shorting gold.
And that's why Germany ain't getting its gold. It was all exercised by the FEDs bad bets. And tungsten cannot berefiined fast enough to rehypothocate the precious stuff..
Recaling m1, cost of living expenses like fuel and food were taken out of the inflation algor. And the haircut on the mortgage vs market value of a homestead was included to held fudge pack the rate to less thann it has ever been.
Well yeah, no one liquidation is going to crush the market. The real question is "is what is happening in this one case indicitive of a possible future trend?" The fact that this fund's methodology has weathered so many problematic markets could be indicitive of a bad trend, or it could just be a fluke. We all go to zero on a long enough timeline so maybe its time just ran out. Yes, there is plenty of Fed printed fake liquidity out there to ofload those bonds, at least it would appear for the time being.
The title of the article is "It begins". The 2008 collapse started with one small mortgage company imploding.
There's never only one roach.
If you actually believe in any of the balance sheet information coming out of Western bankers/companies, you really don't belong here.
Wrong side of those yield numbers fellas? Someday the fed. will use a split rate policy, and you can have your ponzi back.
Mr. Yen Cross, I wish that I understood the market as you and others here do. Yes, I woiuld profit from it, but more imortantly it would be so much easier to see the bullshit and the truth and to a certain degree see what is coming. But for me to understand the market in all of it's nuances, to have the chart make sense, to see behind the numbers takes years. Could I do it yes, should I do it? No. I have my profession you have yours. I do not expect this all the time but every now and then throw a bone to us idiots who do not quite grasp the situation. I would say only do this when you find that it would behoove us bottom feeders who are willing to learn. Provide me with a link to explain it(after all it is 2300 and I do not have time to google). The first 18 months on ZH I learned more from the posters links than from the articles(read for about 18 months prior to joining). Anyways may your trades be profitable and your timing impeccable. Have a good evening.
Here comes the Equity speed wobbles going into London.
Useful idiot> This isn't a pansy assed daycare for basement babies.
Listen and LEARN, or get left behind!
Just like I stated earlier! Equitiy futures are melting down well before the London open as cash flows into short term debt.
I wish individuals like you would take the time to "spell check" their 3rd world English.
Please/ Yen is fine.
S&P 500 Futures 1,993.75 -0.25 -0.01% Nasdaq Futures 4,333.88 -7.38 -0.17%Andsoitbeginsandsoitbeginsandsoitbeginsandsoitbeginsandsoitbegins
if i read that right, and I don't know shit mind you...
one Group is starting to move slowly towards the fire doors, while whistling softly
Good way to image it (like a looney tunes cartoon character...trying to moonwalk away).
U.S. companies have increased borrowing to levels exceeding those just before the financial crisis, as firms pursue big acquisitions and seek to boost stock prices by buying back shares. According to one metric, the ratio of debt to earnings before interest, taxes, depreciation and amortization for companies that carry investment-grade ratings, meaning triple-B-minus or above, was 2.29 times in the second quarter. That’s higher than the 1.91 times in June 2007, just before the crisis, according to figures from Morgan Stanley."
All the denial and evasion about buybacks being essentially a fraudulent way to boost share prices without real growth or capex for so long...
...and now the cretins aren't even hiding it anymore.
We must be getting really close to game over.
m
LMAO, the market cap is $100M, are you fucking kidding me ZH?!?!??!?!?
It always starts with a single domino.
https://www.youtube.com/watch?v=mdT163r3dUQ
https://www.youtube.com/watch?v=y97rBdSYbkg
or they are liquidating because you can't justify a 1.67% expense ration on a $100M fund, or any fund from that matter, and it's gone from 15 to 1.67 in 17 years, maybe that's why it is liquidating, because it's a shitty managed fund.
compare this hunk of shit managed fund to all the others and that will explain why they are closing shop.
shitty overpaid managers
Martial Law in the street yadda yadda yadaa? good movie seen it a few times...
The credit rating agencies are going tio be quick on the draw this time around with downgrades and there is a very narrow exit - how does a mutual fund or ETF meet the cash calls as people rush for the cash?
will the insurance companies pick up the bonds - they have permanent capital - pension funds maybe - but there are rating limits allowed for bothon what they can buy
i dont see how this all works ?
credit rating agencies
lololololololololol
When S&P attemped to downgrade the US the Department of Just-Us raided their place.
Rating garbage as AAA rinse and repeat. Instead of jail time they get bailouts.
always hear about leahman, and bear stearns, but remember the two huge golden snatch funds that posted huge losses then liquidated? nobody talks much about it anymore but it was a huge stressor in 07. global alpha and naeo, it was also the start of the cycle where the rumour got out, the company publicly denied. and it guttered within a few days.
remember how hysterical it was in feb 08, that assclown cramer screaming buy,buy,buy bear stearn on friday and it went to 0 on monday.
I remember quite well. I spent many a night up until 2 a.m. reading about that stuff back then. It always starts with one. In that case - two.
But you should get the point.
well mark, we were both watching that, i got to the point in 08 where i couldn't sleep more than about 3 hours.
Down 10pts bid for 5mm.... down 15pts for 10mm...
Big BWIC's in a thin market are fucking toxic. Saw the carnage last October before that cunt, Bullard, opened his big yap.
Can't just talk your way out of this one, you fucking fed wankers.
Tick tock, bitches, tick tock....
This fund was a disaster from the get go - it was combined from three of four loser funds during the 2008 crash - it now contains about $350M in assets. Blackrock's junk fund has about $1,350M HYT
Investors are getting out at close to NAV instead of the current 15-16% discount so they may be happy, but these things open-end (liquidate) a lot - when market conditions suck. (Conversely they get created near market tops). Timing for Closed end funds starting and ending are laughable.
The liquidation may really signal a market bottom.
gold starting to take a shit after a $5-6 jump earlier in the evening.
fucking cartel manipulation.
1172 and 16 right now
Cartel may be planning to naked sell $12-15B worth of gold contracts within 12 nanoseconds.
Thank You for that wonderful HYG list Tyler. You truly outdid your self.
As I expected. Most can't even meet the 50% percentile.
The drop-off is astounding after the mid 1.5k range.( posistion size)
The Fed's like one huge financial vacuum cleaner. It's buying everything.
Actually, the Bank of Japan is running out of shit to buy. Problem solved!
more like a glorified pawn shop...with a Glory hole in the bathroom for VIP customers
Since ...Bear Sterns?
perhaps UBS AM is simply a rubbish fund manager that cant attract or retain investors because it has delivered sub par performance for excessive fees for years....i mean...take a jpmorgan high yield fund for example...
https://www.jpmorganfunds.com/cm/Satellite?UserFriendlyURL=performance_r...
this lill puppy has 5.3% per annum for the last five years compared to the zero from UBS AM
what is laughable is that the board of the fund is still taking advice from the idjuts that delivered zero for fat fees.. i suspect there has been a bunch of conflicted, self rewarded positions between the manager and the board.....why not sack UBS AM and appoint someone like JPM?
You people were warned. I've been on the sidelines for almost a month.
This usd/jpy H-4 chart looks perfectly natural, after the U.S. equity runup over the last week. NOT
Guys, I'm afraid to tell you that the HYG chart is somehow misleading. HYG pays a coupon on a monthly basis therefore the price (what you have in the chart) doesn't reflect the true performance of the underlying. You should have used the IBOXHY Index, or function TRA in BBG to compute total returns for HYG. If you had done that you would see that since 2008, the total return of the S&P is ~64% vs ~60% for the HYG, and absolutely no divergence there... I'd love to post a picture of this one...
HYF up 12% today to approx 1.85 bid in premarket.. Interesting that the NAV is ~1.98 as of last read.. So the discount is tightening significantly given the amount of time until the _proposed_ liquidation.. That is an amazingly dumb/naive/muppety endorsement of bond-market liquidity.. As if the fund won't burn off any NAV while liquidating..
And the insiders made out like bandits. Same old meme.