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Investors Chase Risk in Junk Bonds at Fastest Pace Ever

Investors Chase Risk in Junk Bonds at Fastest Pace Ever

Courtesy of Mish

Thrilling jumps

Inquiring minds are reading Junk Bonds Selling at Briskest Pace Since 2007.

Companies are selling high-yield, high-risk bonds at the fastest pace since credit markets seized up in 2007 amid signs the economic recovery is gaining momentum.

Renault SA, the second-largest French automaker, Pittsburgh-based U.S. Steel Corp. and other speculative-grade borrowers issued $24.2 billion of high-yield notes in March through last week, putting this month on course to be the busiest since June 2007, according to data compiled by Bloomberg. Sales are up from $16.2 billion in all of February.

“Investors are much more sanguine about risk than they were just a few months ago and are taking on more to get a higher yield,” said Paul Owens, a credit analyst at Liontrust Investment Services Ltd. in London, which had the equivalent of $1.8 billion under management as of Dec. 30. “Companies have reported decent results,” bolstering bond sales, he said.

Issuance of non-investment grade bonds is running at the highest since companies sold $34 billion of the debt in June 2007, after slowing last month amid concern that sovereign budget deficits would stifle growth. The securities are rated lower than BBB- by Standard & Poor’s and Baa3 by Moody’s Investors Service.

Investors are pouring cash into junk-bond funds at the fastest pace on record as corporate defaults decline, according to EPFR Global.

A Return To Normal?

The Bloomberg article said this is a sign markets are returning to normal.

Really?

Was chasing risk in summer of 2007 normal?
How well did it work out?

Let’s not confuse the willingness of the greater fool to finance global junk at the highest rate ever with "normal". Instead I would advise focusing on corporate real estate, credit card defaults, and especially housing starts. The latter typically leads normal recoveries.

Music Still Playing

Trident Unwraps Hundreds of Musical Chairs

But hey, everyone likes a party. Let’s party like it was summer of 2007 again.

I have the perfect quote to match. It’s from July 2007 - Quotes of the Day / Top Call

Chuck Prince: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing".

The Music Stopped for Chuck Prince On November 2, 2007 when his last dance was a two-step out the door.

Rest assured things will "get complicated" again. I just wish I could tell you when.

Mike "Mish" Shedlock


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Click here to see some testimonials from our members!