Fed Easing Pushing Investors to Buy Junk Bonds, Stokes Risk of Bond Reckoning, Benefits the Super-Elite At The Expense of The Little Guy, Fuels Fears of US Currency War, Increases Inequality And Fails To Stimulate The Economy.
December 13th, 2012
How the Fed Is Pushing Investors to Buy Junk Bonds
With no end in sight for the Federal Reserve’s fixation on low interest rates, a likely scramble for yield has intensified worries about dangers ahead for junk-bond investors.
The Fed’s announcement on Wednesday that it will tie near-zero rates to specific unemployment and inflation rates sent a clear signal: Those looking for return in cash and fixed income won’t get it from conventional debt instruments like Treasurys and money market funds.
Instead, they’ll have to turn to assets like stocks, commodities and higher-yielding bond products that carry greater return – and greater risk. (Read More: Fed to Keep Easing, Sets Target for Rates)
“The market is thirsting for yield and the Fed is pushing people to do things like this,” said Lawrence G. McDonald, who as head of LGM Group specializes in junk-bond trading. “So big asset managers are reaching, reaching, reaching and companies know this and are issuing, issuing, issuing all this crap.”
Fed easing stokes risk of bond reckoning