The junk bond market is back with a vengeance in 1991. After a miserable 1990 and talk of that market's imminent demise, junk bond issues have averaged a strong 16 percent gain this year.
Providing the push is optimism that the recession will end with a whimper, and that companies that have somehow managed to struggle this far will continue onward and upward.
Even a default rate among these low-grade issues that's expected to equal last year's hefty 9 percent figure isn't scaring off risk-oriented investors.
Acquisition bids for some cash-poor firms helped returns. The fTC junk bond issues of Tonka Corp., for example, zoomed better than 80 percent. Firms also announced plans to buy back many of their own junk bonds. RJR Nabisco's decision to do so resulted in a near-50 percent gain. Other stars topping the high-yield junk pile include Macy, Southland, Revlon, Quantum Chemical, Owens-Illinois and Ann Taylor.
As a result, February was the best month ever for the junk-bond market.
"Since August, the high-yield bond market has been moving parallel to the stock market, all of which is part of a larger recovery," said Martin Fridson, managing director for high-yield research at Merrill Lynch & Co. "I consider it mathematically impossible for the dramatic rally that began in February to continue at the same pace, but investors can still expect high current income and modest appreciation."
It's worth noting that junk bonds were coming off a down period.
"Values of these bonds got depressed, so this year's rally should not be totally surprising," said Dennis Ott, portfolio manager for AMEV Advantage High Yield Fund.
As far as high-yield bond funds are concerned, some of the biggest losers of 1990 are topping the list in 1991. The Dean Witter High Yield Securities Fund, down 40.13 percent last year as the nation's worst performer, is at the head of the class this year.
There may be more to come for this always-volatile market.
Many who know this quirky market well are cautioning investors that the junk market is often a great place to take your profits and run.
"Anyone who has a high-yield bond that has gone up 50 percent in value might well take profits now, keeping in mind that this remains a volatile market," said Robert Lupo, director of high-yield research for First Chicago Corp.
Top-performing high-yield bonds in total return in 1991, according to Mutual Fund Values, have been:
* Dean Witter High Yield Securities; Dean Witter Reynolds Inc., New York; $1.9 billion in assets; 5.5 percent "load" (initial sales charge); down 40.13 percent last year; up 22.91 percent.
* Kemper Investment Portfolio -- Diversified Income; Kemper Financial Services, Chicago; $225 million assets; "back-end" load during first six years of ownership if money is removed from Kemper family of funds; down 15.79 percent last year; up 20.01 percent.
* AMEV Advantage High Yield Fund; AMEV Investors, St. Paul, Minn.; $23 million assets; 4.5 percent load; down 18.73 percent last year; up 18.97 percent.
* Liberty High Income Bond Fund; Liberty Securities, Boston; $207 million assets; 4.5 percent load; down 12.80 percent last year; up 18.27 percent.
* Kemper High Yield Fund, Kemper Financial Services, Chicago; $1.4 billion assets; 4.5 percent load; down 12.98 percent last year; up 17.77 percent.