Interest Rate Roundup

Wednesday, April 05, 2006

Junkiest junk bond surge

Oh man. Just when I thought I'd seen it all, Bloomberg publishes a story reading "Hard Rock Park, Jostens Lead Sales of Riskiest Debt" The nitty-gritty: Junk bond sales by companies rated CCC or lower (i.e. one step away from defaulting) totaled $20 billion since December. That's the most Bloomberg has ever found (they've been tracking since 1999). It's also QUADRUPLE the levels of a year ago. Yield spreads over Treasuries (an indication of how "risk" is being priced into junk bonds) are the tightest since 1997, according to Merrill Lynch.

Am I the only one out there who realizes this is patently insane? Debt buyers are getting nowhere near the compensation they should get on risky bonds. They're paying out the wazoo for bonds from companies that are virtually guaranteed to default down the road. It's just one more symptom of the Fed's "easy money for everyone" policy. And it's setting us up for a massive train wreck down the road. Ugh.


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