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Investors reaching for extra yield during last decade's persistently low-interest-rate environment flocked to Mr. Kelsoe's funds.
Then those loan packages were chopped up and sold in small pieces as corporate bonds to all kinds of institutions, who were reaching for extra yield.
Hungry for extra yield, it gobbled up several billion dollars of debt issued by structured investment vehicles (SIVs), which have investments in subprime mortgages and other asset-backed nasties that have won them pariah status.Once the extent of this exposure emerged last month, and as rating agencies hastened their downgrading of SIV borrowings, nerves frayed.
But by pushing rates down everywhere, he has driven investors looking for extra yield to the riskiest paper and allowed them to lever up these bets cheaply.
Similar(56)
"With corn at close to $7 per bushel the payback on that is within the same season for sure, a per cent or two of extra yield will pay for the service".
Nowadays, every bit of extra yield, or "alpha", counts.
He is keeping most of his holdings in non-Treasury debt for the extra yield it provides, he said.
For that extra yield, you would incur very little extra risk.
People who invest in general purpose funds are taking on slightly more risk for a little extra yield.
As David Simmonds of Royal Bank of Scotland remarked: "In this period the imperative was to venture forth with liquidity and to find some risk-seeking home for it, some extra yield, some enhanced return.
Ty A. Bernicke, a financial planner in Eau Claire, Wis., worries that too many investors in their 50s and 60s have been buying long-term bonds because they're spooked by stocks so close to retirement and lulled by bonds' past performance or are reaching for a little extra yield.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com