They don't call 'em junk bonds for nothing...
All that buying drove the yield spread, or difference, between high risk bonds and Treasuries to extremely low levels. But the times, they are a' changing. Risk aversion is ticking up along with defaults, and there's the potential for some real losses in the next several months, if history counts for anything. A Bloomberg story said the following:
"Corporate defaults jumped and bonds with ratings below investment grade performed worse than Treasuries the previous four times the U.S. central bank ended a cycle of rate increases, according to data compiled by Merrill Lynch & Co. Junk bonds fell an average 5.12 percent in 2000, the last time the Fed stopped boosting borrowing costs, Merrill data show."
The story went on to say that past "spread blowouts" ranged from 49 basis points in 1995 to a whopping 263 bps in 1989. Consider yourself warned.