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Junk Bond Market Remains as Hot as Ever (Amazingly) – As Investors Reach For Yield

by Brett on August 16, 2010

Investors are back to “reaching for yield”, as junk bonds were snapped up last week in record numbers.  The WSJ reports:

Corporate borrowers with less than investment-grade ratings sold $15.4 billion in junk bonds this week, a record total for a single week, according to data provider Dealogic. The month-to-date total, $21.1 billion, is especially high for August, typically a quiet month that has seen an average of just $6.5 billion in issuance over the past decade.

For the year, the volume of U.S. junk bonds has exceeded $155 billion, 80% higher than in the year-ago period and easily on pace to surpass the record $163.6 billion total for 2009.

Investors have been snapping up the new non-investment-grade bonds, having grown frustrated with stocks and with the meager yields on safer government and high-grade corporate bonds.

Full article here (and hat tip to Carson).

Last week Mish also weighed in on the junk bond spree:

Every time it appears the junk bond market is ready to break down, it instead bounces, with the equity markets following along. How much longer the appetite for junk can remain strong is a mystery. However, somewhere along the line the corporate bond market is going to choke on all this issuance, and when it does, the result will not be pretty for equities.

Mish’s full piece here – including charts illustrating the correlation between junk bonds and the S&P 500.

Here’s the long term chart for junk – still in an uptrend, for now.  And I had no clue that junk bonds held up for so long in 2008 – they didn’t collapse until September.  But when they folded – man, look out below!

Junk Bonds Price Chart August 2010

Source: StockCharts.com


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  • http://carsongross@gmail.com Carson Gross

    Tell me *that* isn’t tempting:

    http://finance.yahoo.com/q?s=JNK101218P00034000

    Cheers,
    Carson

  • Brett

    Mmmmmm savory! The perfect holiday stocking stuffer. I gotta believe our boy Taleb has some of these, or similar.

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