01.10.201406:12:06UTC+00Junk bonds bounce back behind Bank of America opportunity

The market for junk bonds recovered from the sudden departure of Bill Gross, the so called bond king, from his own firm and has risen by the most in two months behind encouragement from Bank of America Corp.

Risk premiums for the credit default swaps index tracking 100 companies listed as speculative, the Markit CDS North American High Yield Index, declined by the largest margin in eight weeks, while the $12.5 billion high yielding risky bond focused exchange traded fund of BlackRock Inc. increased for the first time in a week.

A report from Bank of America said that the quality of credit has not suffered enough to justify the recent sell off and urged investors by saying that “now is the time to take advantage of the fear that has gripped the market.” Investors holding high yield debt were rattled by the exit of Gross from the Pacific Investment Management Co. even as the Federal Reserve becomes more likely to tighten policies that contributed towards a bull market for bonds.

BlackRock’s credit head, Jim Keenan says that, “I think the high-yield selloff is going to be an opportunity. The economy looks like it’s in good shape, corporates are really in good shape. We’re looking for opportunities to buy assets that we like at this point of the market.”

Securities in junk bonds lost 2.5% in September as of yesterday and is on track to record its worst return in a month in over a year, according to data from Bank of America Merrill Lynch. Average bond yields rose from 5.96% to 6.74% from the month’s start.