The Junk Bond Market is Setting Up to Slaughter Investors…“Pigs are greedy and hogs get slaughtered.”
SilverDoctors.com
May 11, 2015
One day soon, junk bond investors will wake up and find that the value of their holdings will be down 40-50% overnight.
And that’s just for starters….
Submitted by PM Fund Manager Dave Kranzler, Investment Research Dynamics:
“Pigs are greedy and hogs get slaughtered.”
When I was a junk bond trader in the 1990s’ we referred to anyone who bought a bond yielding over 12% as “a yield hog.” Back then, anything over 12% had a high probability of default. Back then 12% was 600 basis points (6%) over the 10-yr Treasury bond.
Currently, some junk bonds with triple-C ratings are yielding under 6%. This is less than 400 basis points (4%) over the the 10-yr bond. Think about it: because the Fed has taken short rates to zero, investors are chasing bonds with 5% yields that have at least a 50/50 chance of defaulting. This is despite the fact that energy junk bonds recently have delivered $100’s of millions of losses to junk bond investors.
The retail investor is always the last one in when chasing an investment bubble and always gets hurt the most when the bubble collapses. Currently there’s a massive bubble being blown in the junk bond market.
An article published by Bloomberg – LINK – this morning started off with a rather improbable assertion: “The new fixed-income haven is, of all things, the market for junk bonds.” As a former junk bond trader this got my attention.
The Merriam-Webster dictionary defines the word “haven” as “a place where you are protected from danger, trouble, etc.” Referencing junk bonds as a place where investors “are protected from danger” is the epitome of theatrical absurdity. I doubt Henrik Ibsen could have written anything as grotesquely obtuse.
The Rest…HERE
