4th Quarter Mostly Weak for Junk Bonds

Corporate high-yield junk bonds posted a loss of 2.53% in the fourth quarter of 1989, their weakest performance in five years, according to a report from Salomon Bros. Inc.

Salomon said the market’s softness, which began in late summer, culminated with a selloff in October, as investors were rocked by a series of negative news events capped by the failed UAL Corp. buyout.

The brokerage noted that the market’s weakness continued for the remainder of the year, with selective “bottom fishing” providing some support.

For the year, junk bonds, which are high-risk securities below investment grade, posted only a 1.84% return, according to Salomon’s index, compared to 14.44% for investment grade bonds.

Junk bonds became popular in the mid-1980s when they were used to finance a series of spectacular, high-profile corporate buyouts.

But the $200-billion market fell apart in 1989, particularly in the banking and retail sectors, according to figures provided by Salomon.

In the troubled thrift sector, junk bonds posted a loss of 9.77% for the fourth quarter of 1989 and a loss of 21.49% for the year. In the financial sector, junk bonds posted a loss of 5.7% for the fourth quarter and a loss of 18.66% for the year.

In the retail sector, where the empire built by Canadian Robert Campeau began to crumble, junk bonds posted a loss of 12.91% in the fourth quarter and a loss of 13.86% for the year, Salomon said.

But the report said there were some bright spots in the picture for the selective investor.

In the utility sector, junk bonds posted a return of 4.02% for the quarter and 18.83% for the year. Automotive products was another strong sector, with junk bonds posting a return of 4.04% for the quarter and 14.65% for the year.

Salomon said investment-grade bonds, which are considered less risky but less potentially lucrative than junk bonds, posted a 3.11% return in the 1989 fourth quarter. It said the bank sector of that market, hindered by the deteriorating real estate market, turned in the lowest sector return of 1.31%.